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entitled 'United States Postal Service: Strategy Needed to Address
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United States Government Accountability Office:
GAO:
Report to Congressional Requesters:
May 2011:
United States Postal Service:
Strategy Needed to Address Aging Delivery Fleet:
GAO-11-386:
GAO Highlights:
Highlights of GAO-11-386, a report to congressional requesters.
Why GAO Did This Study:
The United States Postal Service (USPS) has the world’s largest
civilian fleet, with many of its delivery vehicles reaching the end of
their expected 24-year operational lives. USPS is subject to
legislative requirements governing the federal fleet, including a
requirement in the Energy Policy Act of 1992, which provides that 75
percent of USPS’s vehicle acquisitions be alternative fuel vehicles,
capable of operating on a fuel other than gasoline. USPS is also
facing serious cost pressures in maintaining a national network of
processing and retail operations.
Asked to review USPS’s delivery fleet, GAO (1) profiled the fleet;
(2) assessed USPS’s response to alternative fuel vehicle requirements
and described its experiences with these vehicles; (3) identified
USPS’s approach for addressing its delivery fleet needs, including
trade-offs; and (4) determined options to fund a major acquisition of
delivery vehicles. GAO analyzed USPS data; visited USPS facilities in
three locations; and interviewed officials from USPS, the Department
of Energy, and other organizations, including fleet operators and
manufacturers.
What GAO Found:
USPS’s delivery fleet is largely composed of custom-built, right-hand-
drive vehicles designed to last for 24 years, including about 141,000
gasoline-powered vehicles 16 to 23 years old and 21,000 flex-fuel
vehicles capable of running on gasoline or 85-percent ethanol (E85)
that are about 10 years old. The fleet also includes 22,000 left-hand-
drive minivans, many of which are also capable of running on E85, and
3,490 delivery vehicles capable of running on other alternative fuels.
Delivery vehicles are driven an average of about 17 miles per day and
cost about $1 billion to maintain and fuel in fiscal year 2010.
Figure: Delivery Vehicles at a USPS Maintenance Facility (left) and
Post Office (right):
[Refer to PDF for image: 2 photographs]
Source: GAO.
[End of figure]
USPS met the 75 percent acquisition requirement for alternative fuel
vehicles by purchasing about 40,000 flex-fuel vehicles and minivans
that can operate on E85 or gasoline. However, USPS does not always use
E85 in these vehicles because E85 is not readily available and can
cost more to use due to less fuel efficiency, according to USPS
officials. USPS has a variety of limited experiences with other
alternative fuel vehicles, such as compressed natural gas and plug-in
electric vehicles, most of which have higher life-cycle costs than
gasoline vehicles.
USPS’s approach for addressing its delivery fleet needs is to maintain
its current fleet until it determines how to address its longer term
needs. USPS has incurred small increases in direct maintenance costs
over the last 5 years, which were about $2,600 per vehicle in fiscal
year 2010. However, it is increasingly incurring costs for unscheduled
maintenance because of breakdowns, which can disrupt operations and
increase costs. In fiscal year 2010, at least 31 percent of USPS’s
vehicle maintenance costs were for unscheduled maintenance, 11
percentage points over USPS’s 20 percent goal.
USPS’s financial challenges pose a significant barrier to a major
delivery vehicle replacement or refurbishment, estimated to cost $5.8
billion and (in 2005) $3.5 billion, respectively. USPS and other
federal and nonfederal officials see little potential to finance a
fleet replacement through grants or partnerships. GAO has reported
that Congress and USPS need to reach agreement on a package of actions
to move USPS toward financial viability. Depending on the specific
actions adopted, USPS’s follow-up, and the results, such an agreement
could enhance its ability to invest in new delivery vehicles.
What GAO Recommends:
USPS should develop a strategy for addressing its delivery fleet needs
that considers the effects of likely operational changes, legislative
fleet requirements, and other factors. USPS agreed with GAO’s
recommendation.
View [hyperlink, http://www.gao.gov/products/GAO-11-386] or key
components. For more information, contact Phil Herr at (202) 512-2834
or herrp@gao.gov.
[End of section]
Contents:
Letter:
Background:
USPS's Delivery Fleet Primarily Consists of LLVs That Are Approaching
the End of Their 24-Year Expected Operational Lives:
USPS Has Acquired Alternative Fuel Vehicles in Response to
Requirements, but Has Experienced Challenges:
USPS's Approach for Addressing Its Delivery Fleet Needs Has Financial,
Operational, and Environmental Trade-offs:
Without Significant Improvement in USPS's Financial Condition, There
Are No Clear Options to Fund a Major Vehicle Replacement:
Conclusions:
Recommendation for Executive Action:
Agency Comments:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: USPS's Experiences with Non-E85-Capable Alternative Fuel
Vehicles:
Appendix III: Comments from the United States Postal Service:
Appendix IV: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Types of Delivery Routes and Number of USPS Vehicles Used for
Each Route, as of September 30, 2010:
Table 2: Profile of the Three Main Categories of USPS Delivery
Vehicles, as of September 30, 2010:
Table 3: Number of USPS Delivery Vehicles, by Alternative Fuel
Capability, as of September 30, 2010:
Table 4: Nonfederal Organizations Interviewed:
Figures:
Figure 1: USPS LLVs, 2010:
Figure 2: Example of an LLV and FFV, 2010:
Figure 3: USPS Minivan Used for Delivering Mail, 2010:
Figure 4: Number of Gas Stations that Sell E85 in Each State, as of
December 31, 2010:
Figure 5: Gas Station Sign Advertising E85 near a Minnesota Post
Office with E85-Capable Delivery Vehicles in September 2010, and
Decals on the Fuel Cap Door of a USPS Delivery Minivan Indicating That
It Is E85 Capable:
Figure 6: Average USPS Price for E85 and Gasoline in Fiscal Year 2010
and the Fuels' Relative Efficiency:
Figure 7: Annual Average Maintenance Cost Per Vehicle for USPS's
Delivery Fleet over the Past 5 Fiscal Years:
Figure 8: Proportion of USPS's Delivery Vehicles in Each Maintenance
Cost Range, Fiscal Year 2010:
Figure 9: New LLV Frames Awaiting Installation (left), and an LLV
Being Reassembled after a Frame Replacement (right), 2010:
Figure 10: Example of Rust in Lower Half of Body Mount at a Post
Office in Florida, 2010:
Figure 11: Rusted Frame with Holes Being Replaced in a USPS Vehicle
Maintenance Facility in New York State, 2010:
Figure 12: A Ford Windstar Minivan Being Repaired at a Postal Vehicle
Maintenance Facility (left) and a Nonoperational Minivan Up on Blocks
Being Used for Parts (right), 2010:
Figure 13: Example of an Unused Compressed Natural Gas Fuel Pump at a
Post Office in Huntington, New York, 2010:
Figure 14: T-3 Electric Personal Mobility Delivery Vehicle, 2010:
Figure 15: One of Two Hybrid 2-Ton Delivery Vehicles in Huntington,
New York, 2010:
Abbreviations:
DOE: Department of Energy:
EPAct 1992: Energy Policy Act of 1992:
FFV: flex-fuel vehicles:
GSA: General Services Administration:
LLV: long-life vehicles:
UPS: United Parcel Service:
USPS: United States Postal Service:
VMAS: Vehicle Management Accounting System:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
May 5, 2011:
The Honorable Joseph Lieberman:
Chairman:
The Honorable Susan Collins:
Ranking Member:
Committee on Homeland Security and Governmental Affairs:
United States Senate:
The Honorable Tom Carper:
Chairman:
The Honorable Scott Brown:
Ranking Member:
Subcommittee on Federal Financial Management, Government Information,
Federal Services, and International Security:
Committee on Homeland Security and Governmental Affairs:
United States Senate:
The Honorable John McCain:
United States Senate:
The United States Postal Service (USPS) operates the world's largest
civilian vehicle fleet, with more than 215,000 vehicles, of which
about 192,000 are delivery vehicles.[Footnote 1] These vehicles are
vital to accomplishing USPS's mission of delivering mail to about 131
million residential and business addresses, in most cases, 6 days a
week.[Footnote 2] The majority of USPS's delivery fleet is composed of
custom-built, right-hand-drive, light-duty delivery trucks that it
refers to as "long-life vehicles" (LLV)--vehicles built with an
aluminum body and other features intended to permit an extended
operational life of 24 years (see figure 1). Purchased from 1987 to
1994, the LLVs are now approaching the end of their expected
operational lives.
Figure 1: USPS LLVs, 2010:
[Refer to PDF for image: photograph]
Source: GAO.
[End of figure]
USPS is required to provide efficient mail service and is expected to
pay for its operations through the revenue it receives.[Footnote 3]
USPS also is required to comply with certain legislative requirements
governing the federal fleet. For example, under the Energy Policy Act
of 1992 (EPAct 1992), 75 percent of the light-duty vehicles that USPS
acquires must be capable of using an alternative fuel.[Footnote 4]
As we previously reported, USPS's business model is not viable because
it has been unable to reduce costs sufficiently in response to
continuing declines in mail volumes and revenue, and it faces growing
financial challenges for the foreseeable future.[Footnote 5]
Specifically, mail volumes have declined about 20 percent over the
last 4 fiscal years because of the economic downturn and the public's
changing use of the mail. In addition, over the same period, USPS's
financial condition has deteriorated, with cumulative losses of more
than $20 billion and rising debt. For fiscal year 2011, USPS projects
a $6.4 billion loss and expects to reach the $15 billion statutory
limit on its debt. USPS's ongoing financial challenges led us to place
USPS's financial condition and outlook on our high-risk list in July
2009.[Footnote 6] We have reported that action by Congress and USPS is
needed on a package of actions that will allow USPS to move toward
financial viability by reducing costs, increasing efficiency, and
generating revenues.[Footnote 7]
In view of USPS's difficult financial condition, you asked us to
review matters related to USPS's aging delivery fleet. To do so, we
addressed the following key questions: (1) What is the profile of
USPS's delivery fleet? (2) How has USPS responded to requirements for
alternative fuel vehicles, what experiences has it had with
alternative fuel vehicles, and what has it learned from its
experiences? (3) What, if any, approach has USPS adopted to address
its delivery fleet needs, and what are the trade-offs of this
approach? (4) What options exist to help USPS fund a major acquisition
of delivery vehicles?
To address our reporting objectives, we collected and analyzed data on
USPS's delivery fleet for fiscal years 2006 through 2010, using data
from a custom query of USPS's Vehicle Management Accounting System
(VMAS). To supplement this information, we also reviewed data from
reports generated by VMAS (VMAS reports) that USPS officials regularly
use to track the agency's vehicle maintenance and fuel costs. The VMAS
reports categorize vehicles somewhat differently than our custom
query, and therefore the numbers of vehicles identified in these two
sources cannot be compared directly. Through these two sources, we
developed a profile of USPS's delivery fleet from fiscal years 2006
through 2010, including most direct costs related to the vehicles'
maintenance, excluding costs related to accidents. Based in part on
electronic testing and interviews with USPS officials knowledgeable
about VMAS system controls and vehicle data procedures, we determined
that the VMAS data were sufficiently reliable for the purposes of this
report. In addition, we worked with USPS Finance and Vehicle Programs
officials to obtain a USPS estimate of the total maintenance and fuel
costs for the agency's delivery fleet in fiscal year 2010. We compared
this estimate with cost summaries and other information provided by
USPS finance officials that supported amounts reported in USPS's
audited financial statements for fiscal year 2010 and determined that
the agency's estimate was reasonable. We also conducted site visits to
three states (Florida, Minnesota, and New York), chosen because they
represent a variety of climates and operating conditions and because
USPS operates various types of alternative fuel delivery vehicles in
these locations. During our site visits, we interviewed a variety of
USPS personnel, including facility managers, maintenance technicians,
and letter carriers. We also reviewed prior studies on USPS's
financial challenges, federal fleet alternative fuel vehicle
requirements and agencies' experiences with these technologies,
federal principles for capital planning, and documentation on USPS's
environmental sustainability goals. Finally, we interviewed USPS,
Department of Energy (DOE), and General Services Administration (GSA)
officials and a wide range of officials from companies with large
vehicle fleets, such as FedEx Express and United Parcel Service (UPS);
automobile manufacturers; alternative fuel associations; and
environmental organizations.
We conducted this performance audit from February 2010 to May 2011 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives. Appendix I
provides additional information on our scope and methodology.
Background:
USPS's mission is to provide reliable, affordable, and universal mail
delivery and postal retail services to the entire U.S. population as
nearly as practicable, regardless of where people live. In the past 5
years, USPS's delivery workload has increased on average by about 1
million delivery points, or addresses, per year--from 126 million in
fiscal year 2006 to about 131 million in fiscal year 2010.[Footnote 8]
USPS organizes its delivery points into city and rural routes. Most
city routes fall into one of three main types, as shown in table 1.
Table 1: Types of Delivery Routes and Number of USPS Vehicles Used for
Each Route, as of September 30, 2010:
Route type[A]: City;
Definition: A route designated as serving city locations, rather than
rural areas. USPS provides vehicles for all motorized city routes;
Number of USPS vehicles used for each route type: 160,006.
Route type[A]: City: Park and loop;
Definition: The letter carrier drives the vehicle to a designated
parking location. The carrier then walks a segment of the route before
driving to the next location and walking another segment of the route;
Number of USPS vehicles used for each route type: 80,564.
Route type[A]: City: Curbline;
Definition: The letter carrier delivers to mailboxes at the curb,
typically without leaving the vehicle;
Number of USPS vehicles used for each route type: 50,517.
Route type[A]: City: Dismount;
Definition: The letter carrier exits the vehicle and delivers mail to
the door. Dismount routes include carrier pick-ups at collection boxes;
Number of USPS vehicles used for each route type: 14,058.
Route type[A]: City: Other;
Definition: This category includes walking, bicycle, and express
package routes;
Number of USPS vehicles used for each route type: 14,867.
Route type[A]: Rural[B];
Definition: A route designated as serving rural areas. Such routes
typically involve curbline delivery. Because of suburban development,
over time, many rural routes now resemble city curbline routes;
Number of USPS vehicles used for each route type: 32,299.
Route type[A]: Total;
Number of USPS vehicles used for each route type: 192,305.
Source: GAO analysis of a custom query of VMAS data.
Note: USPS also has highway contract routes. These routes are not
included in this table because USPS does not provide vehicles for
these routes.
[A] USPS characterizes routes based on the type of delivery for the
majority of each route. According to Vehicle Programs officials, many
routes involve more than one type of delivery.
[B] Many rural routes are operated with privately owned vehicles.
[End of table]
In its two most recent contracts with the National Rural Letter
Carriers Association,[Footnote 9] USPS agreed to provide about 40,000
right-hand-drive vehicles for many of its rural routes from 2004 to
2013. As of December 31, 2010, USPS had provided rural letter carriers
with 33,060 of the contractually required vehicles. According to USPS
officials, USPS expects to provide the remaining vehicles by the end
of December 2013. According to USPS officials, USPS provides the
vehicles to rural carriers with low mileage routes and based on other
considerations, such as the vehicle's proximity to fuel and a USPS
vehicle maintenance facility and the adequacy of security for the
vehicle. While these agreements significantly expanded the number of
rural letter carriers who operated USPS vehicles, as of March 11,
2011, 41,026 rural letter carriers still used their personal vehicles
for USPS mail deliveries.
USPS is an independent establishment of the federal government, with a
Board of Governors, which has responsibilities similar to a
corporation's board of directors, that oversees its operations and
expenditures, including those for major capital investments. Over the
past 4 years, capital investments declined from $2.7 billion in fiscal
year 2007 to $1.4 billion in fiscal year 2010. According to USPS
officials, most capital expenditures since fiscal year 2008 have been
for investments that are expected to provide cost savings, such as
automated mail sorting equipment, and none of these expenditures have
been for delivery vehicles. However, as a result of appropriations to
GSA under the American Recovery and Reinvestment Act of 2009, USPS
received about 6,500 new, more fuel-efficient vehicles from GSA in
2009 and 2010 in a one-for-one exchange for older, less fuel-efficient
USPS vehicles.[Footnote 10]
To help address its financial challenges, in March 2010, USPS issued a
10-year action plan, or strategy, in which it proposed, among other
things, reducing mail delivery from 6 days to 5 days a week and
enhancing its ability to close underutilized postal offices. The plan
did not include a strategy for addressing the agency's delivery fleet
needs. USPS also has made operational changes to reduce costs, such as
deploying a new system that automatically sorts and sequences large
envelopes and magazines into the order in which they are to be
delivered. According to USPS, this system reduces the time letter
carriers must spend preparing mail for delivery and allows for
consolidation of delivery routes into fewer, but longer, routes.
[Footnote 11] USPS is also working to enhance its revenues through
initiatives such as the introduction of flat-rate boxes for Priority
Mail and volume-based rate incentives to stimulate additional mail
use. Operational changes will affect USPS's future fleet needs.
USPS is subject to certain provisions of EPAct 1992 related to federal
agency vehicle fleets. The act--designed to improve energy efficiency--
requires that 75 percent of light-duty vehicles acquired for federal
fleets in major metropolitan areas be capable of using alternative
fuels. Alternative fuel vehicles must be capable of using one of a
variety of fuel types, such as ethanol, natural gas, propane,
biodiesel, electricity, or hydrogen. Legislation subsequently expanded
the definition of alternative fuel vehicles to include hybrid vehicles
and any other type of vehicle that can achieve a significant reduction
in petroleum consumption, as demonstrated by the Administrator of the
U.S. Environmental Protection Agency. Legislation also subsequently
required that all dual-fuel vehicles use alternative fuel unless they
have received a waiver from DOE.[Footnote 12] DOE grants waivers to
agencies that operate vehicles in areas where alternative fuel is
unavailable, not available within 5 miles or 15 minutes of travel, or
more expensive per gallon than gasoline at the same fuel station.
[Footnote 13]
In February 2011, USPS had 306 vehicle maintenance facilities
distributed among its seven area offices.[Footnote 14] According to
USPS officials, the agency also uses contractors at private
maintenance facilities, such as garages, to perform some of its
vehicle maintenance, and their use has increased in recent years,
partly because the number of USPS technicians has declined under a
hiring freeze. USPS tracks its vehicles' performance and costs,
including maintenance work and costs, through VMAS, according to USPS
officials. Field and headquarters offices get periodic VMAS reports on
various vehicle performance indicators, and data on vehicle accidents
are kept in a separate database.
USPS's Office of Vehicle Programs, which is under the Vice President
of Delivery and Post Office Operations, is responsible for fleet
management, leasing, maintenance policies and procedures, parts,
vehicle research, development and testing, and new vehicle
acquisitions. In addition, USPS's Office of Sustainability coordinates
and establishes energy and environmental goals for the fleet.
Consistent with legislative requirements, by fiscal year 2015
(compared with a fiscal year 2005 baseline), USPS's goals are to
reduce petroleum fuel use by 20 percent and increase alternative fuel
use by 10 percent annually (for an overall increase of 100 percent
over the 10-year period).[Footnote 15]
In its fiscal year 2010 Strategic Sustainability Performance Plan,
USPS reported that it did not expect to meet its 2015 petroleum
reduction goal. Specifically, USPS reported that from fiscal years
2005 through 2009, its delivery fleet's use of petroleum increased
because of growth in the number of its delivery addresses. According
to USPS, its proposal to reduce delivery from 6 days to 5 days a week
has the largest petroleum reduction potential, but even if Congress
approves the proposal, it would not be likely to meet its fiscal year
2015 goal. In contrast, USPS reported that it had already met its
second goal because, from fiscal years 2005 through 2009, its use of
alternative fuel increased by 114 percent.
USPS's Delivery Fleet Primarily Consists of LLVs That Are Approaching
the End of Their 24-Year Expected Operational Lives:
LLVs, Flex-Fuel Vehicles, and Minivans Are the Principal Components of
USPS's Delivery Fleet:
The number of half ton and smaller vehicles in USPS's delivery fleet--
mostly LLVs, flex-fuel vehicles (FFV), and minivans--has remained
relatively constant over the past 5 fiscal years, ranging from 182,517
to 189,712 vehicles,[Footnote 16] despite about 13,400 fewer delivery
routes. The number of delivery vehicles peaked in fiscal year 2008,
before falling slightly, and grew overall by 3,487 vehicles, or about
2 percent, over the 5-year period.
Despite some recent vehicle purchases, the majority of USPS's fleet
consists of LLVs, which are approaching the end of their 24-year
expected operational lives. Produced by Grumman, the LLVs were
acquired from 1987 through 1994, before EPAct 1992's light-duty
vehicle acquisition percentage requirements went into effect in fiscal
year 1996.[Footnote 17] The LLVs have light-weight and long-lasting
aluminum bodies mounted on a General Motors chassis and are powered by
a 4-cylinder gasoline engine. USPS acquired the second major segment
of the delivery fleet, FFVs, in 2000 and 2001, after EPAct 1992's
acquisition requirements went into effect. The FFVs have an aluminum
body that is similar to that of the LLV. According to USPS officials,
FFVs are mounted on a Ford Explorer platform and are powered by a 6-
cylinder engine that is "flex-fuel" capable, meaning that it can use
gasoline or E85, a mixture of gasoline and ethanol (85 percent).
LLVs and FFVs, which together make up about 84 percent of USPS's
delivery fleet, are easily identifiable as mail delivery vehicles (see
figure 2). These vehicles are built on a light truck chassis (light-
duty vehicles) and have a cargo capacity of 1,000 pounds with 108
cubic feet of cargo space. Key features of both include right-hand
drive, an open interior for storing mail, and sliding doors. According
to USPS, right-hand-drive vehicles are necessary for curbline delivery
so that letter carriers can safely deliver mail directly to mail boxes
without leaving their vehicles. Because right-hand-drive vehicles can
be used for all routes, they also provide operational flexibility,
allowing managers to move them to any route when, for example, another
right-hand-drive vehicle is out of service for maintenance. In
addition, Vehicle Programs officials told us that a standardized
design minimizes training requirements and facilitates the
establishment of partnerships with part suppliers.
Figure 2: Example of an LLV and FFV, 2010:
[Refer to PDF for image: 2 photographs]
LLV:
FFVs have an extra window behind the door for improved visibility.
Source: GAO.
[End of figure]
The LLVs' and FFVs' bodies were made to withstand harsh operating
conditions. USPS officials explained that the typical delivery
operating cycle is extremely hard on vehicles because of the large
number of stops and starts each day (an average of about 500 stops and
starts per delivery route). In addition, when the letter carrier
frequently exits and re-enters the vehicle, doors are opened and
closed, and keys are turned in the door locks and ignition far more
often than in a typical personal vehicle.
The third major segment of the delivery fleet, shown in figure 3,
consists of commercially available minivans. While USPS modified these
minivans for use as delivery vehicles,[Footnote 18] according to USPS
officials, they do not have right-hand drive and therefore cannot be
used on all routes, reducing operational flexibility. In addition,
commercially available vehicles are not built to withstand the harsh
operating conditions of mail delivery and, consequently, the minivans
have an expected operating life of 10 years. Most of USPS's minivans
are E85-capable, meaning that they can operate on either E85 or
gasoline.
Figure 3: USPS Minivan Used for Delivering Mail, 2010:
[Refer to PDF for image: photograph]
Source: GAO.
[End of figure]
Table 2 provides a profile of the three main types of delivery
vehicles that collectively account for about 96 percent of USPS's
192,305 delivery vehicles. Other types of vehicles are used to deliver
mail in certain areas. These vehicles include sport utility vehicles
and larger 2-ton trucks, which typically are used for mail collection,
not deliveries.
Table 2: Profile of the Three Main Categories of USPS Delivery
Vehicles, as of September 30, 2010:
Vehicle type: LLV;
Acquisition years: 1987-1994;
Vehicle acquisition costs[A] (adjusted for inflation): $20,009[B];
Mean age (years): 20;
Age range (years): 16-23;
Estimated vehicle life (years): 24;
Average miles driven per day/year: 18/5,388;
Number in fleet: 141,319.
Vehicle type: FFV;
Acquisition years: 2000-2001;
Vehicle acquisition costs[A] (adjusted for inflation): 25,070[C];
Mean age (years): 9;
Age range (years): 9-10;
Estimated vehicle life (years): 24;
Average miles driven per day/year: 17/5,079;
Number in fleet: 21,137.
Vehicle type: Minivan: Ford Aerostars and Windstars;
Acquisition years: 1997-1998;
Vehicle acquisition costs[A] (adjusted for inflation): 23,155[D];
Mean age (years): 12;
Age range (years): 12-13;
Estimated vehicle life (years): 10;
Average miles driven per day/year: 11/3,369;
Number in fleet: 5,351.
Vehicle type: Minivan: Chrysler Caravans and Ford Windstars;
Acquisition years: 2003;
Vehicle acquisition costs[A] (adjusted for inflation): 22,875[E];
Mean age (years): 7;
Age range (years): 7;
Estimated vehicle life (years): 10;
Average miles driven per day/year: 15/4,639;
Number in fleet: 6,563.
Vehicle type: Minivan: Chrysler Caravans, Dodge Caravans, and
Chevrolet Uplanders;
Acquisition years: 2006-2008;
Vehicle acquisition costs[A] (adjusted for inflation): 17,500[F];
Mean age (years): 2.6;
Age range (years): 2-4;
Estimated vehicle life (years): 10;
Average miles driven per day/year: 14/4,203;
Number in fleet: 10,186.
Vehicle type: Subtotal:
Number in fleet: 184,556.
Vehicle type: Other;
Number in fleet: 7,749.
Vehicle type: Total;
Number in fleet: 192,305.
Source: GAO analysis of a custom query of USPS's VMAS data (number in
fleet) and information provided by USPS from VMAS reports.
[A] Acquisition costs have been adjusted for inflation using a Gross
Domestic Product Price Index, base year 2010.
[B] USPS acquired the LLVs from 1987 to 1994. Because relatively
consistent quantities of LLVs were purchased each year, USPS provided
us with the per-unit cost for 1990--the approximate mid-point of the
acquisitions--of $13,057 as the base year from which to adjust the
vehicles' cost for inflation.
[C] USPS acquired the FFVs from 2000 to 2001 at a per-unit cost of
$20,537. We chose 2001 as the base year to adjust the vehicles' cost
for inflation because, according to a Vehicle Programs official, most
of USPS's payments for these vehicles occurred in that year.
[D] This minivan category comprises two vehicle types with different
costs that USPS acquired during 1997 and 1998. The per-unit costs for
these vehicles were $21,069 for the Ford Aerostars and $17,558 for the
Ford Windstars. To obtain a single cost figure, we first adjusted the
per-unit costs of each model for inflation. We chose 1998 as the base
year to adjust the vehicles' cost for inflation because, according to
a Vehicle Programs official, most of USPS's payments for these
vehicles occurred in that year. We then calculated a weighted average
based on the number of each model (Aerostars and Windstars) acquired.
[E] This minivan category comprises two types of vehicles, Chrysler
Caravans, acquired in 2003 at a per-unit cost of $19,451, and Ford
Windstars. According to USPS officials, the Ford Motor Company
provided the Windstars free of charge to USPS. Ford provided the
Windstars to USPS in exchange for 500 electric vehicles that Ford
recalled when the vehicles' battery manufacturer when out of business.
(This matter is discussed later in the report.) As a result, the
$22,875 shown reflects only the per-unit cost for the Chrysler
Caravans, adjusted for inflation.
[F] Acquired from 2006 to 2008, this minivan category comprises three
vehicle types with different acquisition costs. The per-unit costs of
these vehicles were $18,861 for the Chrysler Caravans, $17,261 for the
Dodge Caravans, and $15,616 for the Chevrolet Uplanders. To obtain a
single cost figure, we adjusted the per-unit costs of each model for
inflation. We chose the middle year of acquisition, 2007, as the base
year to adjust the vehicles' cost for inflation. We then calculated a
weighted average based on the number of each vehicle type (Chrysler
Caravans, Dodge Caravans, and Chevrolet Uplanders) acquired.
[End of table]
According to Vehicle Programs officials, USPS leased some delivery
vehicles (minivans) in the past, but it now owns all of its delivery
vehicles. In part, this is because USPS's custom-built LLVs and FFVs
are not commercially available through leasing programs. However, even
when vehicles are commercially available, Vehicle Programs officials
stated that, according to USPS's lease-versus-buy analyses for recent
purchases, such as its fiscal year 2008 acquisition of minivans,
purchasing these vehicles has been more cost-effective than leasing
them because USPS intends to own the vehicles for a long time.
[Footnote 19]
Some of USPS's Delivery Vehicles Are Capable of Using Alternative
Fuels:
About 78 percent of USPS's delivery vehicles use gasoline or diesel
exclusively, while the other 22 percent are capable of operating with
an alternative fuel.[Footnote 20] As shown in table 3, E85-capable
vehicles (FFVs and minivans) make up about 20 percent of the delivery
fleet while, collectively, the other alternative fuel vehicles--
typically, converted LLVs--account for about 2 percent of the delivery
fleet. According to Vehicle Programs officials, a typical LLV uses an
equivalent of about two gasoline gallons of fuel a day. According to
USPS officials, while USPS has a variety of pilot programs underway to
explore other alternative fuel vehicle technologies (other than E85-
capable vehicles), almost all of its other alternative fuel vehicles
are capable of using compressed natural gas in addition to gasoline.
Table 3: Number of USPS Delivery Vehicles, by Alternative Fuel
Capability, as of September 30, 2010:
Alternative fuel capability: E85;
Description of fuel type: E85 is a blend of 85% ethanol (primarily
derived from corn) and 15% gasoline;
Number of vehicles: 39,149[A];
Percentage of delivery fleet: 20%.
Alternative fuel capability: Compressed natural gas;
Description of fuel type: Primarily consists of methane, around 90%,
with small amounts of ethane, propane, and other gases;
Number of vehicles: 3,401[B];
Percentage of delivery fleet: 2%.
Alternative fuel capability: Propane;
Description of fuel type: Propane is naturally occurring and is
derived from a process of separating petroleum from crude oil or
natural gas;
Number of vehicles: 34[C];
Percentage of delivery fleet: less than 1%.
Alternative fuel capability: Plug-in electric;
Description of fuel type: Electric vehicles store electricity in an
energy storage device, such as a battery. Energy is replenished by
plugging the vehicle into an electric source;
Number of vehicles: 42[D];
Percentage of delivery fleet: less than 1%.
Alternative fuel capability: Conventional hybrid;
Description of fuel type: Uses both gasoline and stored energy in a
battery to power the vehicle;
Number of vehicles: 11[E];
Percentage of delivery fleet: less than 1%.
Alternative fuel capability: Hydrogen;
Description of fuel type: A fuel cell stack in the vehicle converts
hydrogen gas and oxygen into electricity, which drives an electric
motor;
Number of vehicles: 2[F];
Percentage of delivery fleet: less than 1%.
Alternative fuel capability: Total;
Number of vehicles: 42,610;
Percentage of delivery fleet: 22%.
Source: GAO analysis of data provided by USPS from a VMAS report.
Note: Percentages do not total to 22 due to rounding.
[A] These vehicles consist of FFVs and E85-capable minivans.
[B] These vehicles consist of 3,372 converted LLVs and 29 2-ton trucks
that run on compressed natural gas.
[C] These vehicles are LLVs that have been converted to operate on
propane.
[D] USPS has 30 electric 2-ton trucks and 12 T-3s--three-wheeled
vehicles equipped with a small trailer for more storage capacity.
[E] Ten of these hybrids are sports utility vehicles that operate on
gasoline. The remaining hybrid is a 2-ton truck that uses diesel.
[F] Each of these vehicles is a GM Chevrolet Equinox sports utility
vehicle.
[End of table]
USPS Has Acquired Alternative Fuel Vehicles in Response to
Requirements, but Has Experienced Challenges:
USPS Has Acquired E85-Capable Vehicles and Increased E85 Use, but Has
Not Always Used E85 because of Logistical and Cost Issues:
Since 2000, USPS has consistently purchased E85-capable delivery
vehicles to satisfy the legislative requirement that at least 75
percent of its vehicle acquisitions be alternative fuel vehicles, and
it had a total of 39,149 E85-capable vehicles in its delivery fleet as
of September 30, 2010. According to Vehicle Programs officials, USPS
purchased E85-capable vehicles because even though prior to 2004 each
vehicle cost about $300 to $500 more than a comparable gasoline-only
vehicle when they were acquired, purchasing E85-capable vehicles
allowed USPS to meet the requirements of EPAct 1992 for less than it
would have had to spend to acquire other types of alternative fuel
vehicles. In addition, according to Vehicle Programs officials, the
agency expected that E85 eventually would be widely available
throughout the United States. However, according to DOE data, E85
suppliers are concentrated in a few regions of the country (see figure
4.) and, as of December 2009,[Footnote 21] E85 was not available at 99
percent of U.S. fueling stations.
Figure 4: Number of Gas Stations that Sell E85 in Each State, as of
December 31, 2010:
[Refer to PDF for image: illustrated U.S. map]
Alabama: 17;
Alaska: 0;
Arizona: 31;
Arkansas: 13;
California: 57;
Colorado: 86;
Connecticut: 1;
Delaware: 1;
District of Columbia: 3;
Florida: 41;
Georgia: 47;
Hawaii: 1;
Idaho: 7;
Illinois: 209;
Indiana: 139;
Iowa: 145;
Kansas: 38;
Kentucky: 24;
Louisiana: 5;
Maine: 0;
Maryland: 19;
Massachusetts: 3;
Michigan: 109;
Minnesota: 361;
Mississippi: 4;
Missouri: 105;
Montana: 2;
Nebraska: 59;
Nevada: 26;
New Hampshire: 0;
New Jersey: 5;
New Mexico: 11;
New York: 75;
North Carolina: 20;
North Dakota: 56;
Ohio: 69;
Oklahoma: 13;
Oregon: 8;
Pennsylvania: 36;
Rhode Island: 0;
South Carolina: 104;
South Dakota: 104;
Tennessee: 38;
Texas: 52;
Utah: 5;
Vermont: 0;
Virginia: 11;
Washington: 15;
West Virginia: 3;
Wisconsin: 134;
Wyoming: 6.
Sources: DOE (data); Map Resources (map).
[End of figure]
USPS increased its use of E85 from about 324,000 gasoline gallon
equivalents in fiscal year 2005 to about 822,000 gasoline gallon
equivalents in fiscal year 2009--an increase of about 154 percent--but
the limited availability of E85 nationwide has hindered its greater
use of this fuel. For example, according to USPS officials, letter
carriers who drive the 720 E85-capable vehicles USPS deployed around
Minneapolis and St. Paul, Minnesota, face few problems because E85 is
widely available there (see figure 5). However, because of operational
requirements, many E85-capable delivery vehicles are used in other
areas, such as New England, that currently have very limited E85
availability. According to Vehicle Programs officials, to increase E85
use, USPS has redeployed some E85-capable vehicles within local areas
so that they could be fueled with E85. However, Vehicle Programs
officials said that USPS has not undertaken large-scale redeployments
of these vehicles because a cross-country move costs about $1,500 to
$2,500 per vehicle.[Footnote 22]
Figure 5: Gas Station Sign Advertising E85 near a Minnesota Post
Office with E85-Capable Delivery Vehicles in September 2010, and
Decals on the Fuel Cap Door of a USPS Delivery Minivan Indicating That
It Is E85 Capable:
[Refer to PDF for image: 2 photographs]
Source: GAO.
[End of figure]
Because of E85's limited availability, USPS has sought annual waivers
from DOE and, according to USPS data for fiscal year 2010, obtained
waivers that permit it to operate 21,495 of its 40,072 E85-capable
vehicles--or about 54 percent--exclusively on gasoline.[Footnote 23]
The remaining 18,577 E85-capable vehicles operate without waivers
(unwaived vehicles) and, thus, are expected to operate exclusively on
E85. However, as described below, because operational costs are higher
for using E85 than for using gasoline, even when E85-capable vehicles
are located in areas where E85 is available, USPS does not always use
E85, as acknowledged by Vehicle Programs officials. According to DOE
officials, apart from cost considerations, DOE will not grant a waiver
to the requirement to use alternative fuel when E85 is available
within 5 miles or 15 minutes of travel. In January 2009, USPS issued a
policy stating that vehicles should be fueled with E85 when (1) E85 is
available either to an entire delivery unit or on a specific route
when no deviation from the route or no additional travel time is
required to acquire E85 and (2) E85 costs the same or less than
gasoline.[Footnote 24] In July 2009, based on DOE's draft guidance on
E85 waivers, USPS issued a related memo requesting delivery programs
managers to determine where E85 was located within 15 minutes or 5
miles of E85-capable vehicles and priced equal to or less than regular
unleaded gas. The memo advised the managers that E85 must be used if
these conditions were met. However, Vehicle Programs officials
acknowledged that, due to operational requirements and cost issues,
this latter requirement is not always followed. Instead, according to
a USPS official, managers are expected to take into account the
language in both the January 2009 policy and July 2009 memo while
considering operational requirements, such as additional labor costs,
that may be incurred by letter carriers who must deviate from their
routes to fuel with E85.[Footnote 25]
DOE officials are aware that USPS's E85 policy varies from DOE's
criteria for approving waivers and that USPS is not fully complying
with legislative requirements to fuel unwaived E85-capable vehicles
with E85.[Footnote 26] However, they acknowledged that, unlike other
agencies that receive appropriations for fuel expenditures, USPS must
pay for its fuel costs through income earned from its operations.
USPS's Use of E85-Capable Vehicles Has Resulted in Higher Fuel Costs:
USPS's use of E85-capable vehicles has resulted in higher operating
costs regardless of whether the vehicles are fueled with E85 or
gasoline. First, when USPS contracted to purchase its FFVs in 2000,
E85 capability was available only in vehicles with 6-cylinder engines.
According to USPS officials, the FFVs' 6-cylinder engines are heavier
and less fuel efficient than the LLVs' 4-cylinder engines, resulting
in higher fuel consumption and costs--regardless of the type of fuel
used. Second, because of E85's lower energy density, USPS's FFVs are
about 27 to 30 percent less fuel efficient when fueled with E85 than
when fueled with gasoline, according to Vehicle Programs officials.
Thus, it takes more gallons of E85 than gasoline to drive the same
number of miles. Furthermore, although E85 generally costs less per
gallon than gasoline, the difference in cost generally has not been
sufficient to offset the higher costs associated with E85's lower fuel
efficiency (see figure 6). Based on USPS's information that it
consumed about 587,000 gallons of E85 in fiscal year 2010, we estimate
that USPS incurred about $135,700 more in costs in fiscal year 2010 by
using E85, instead of gasoline.
Figure 6: Average USPS Price for E85 and Gasoline in Fiscal Year 2010
and the Fuels' Relative Efficiency:
[Refer to PDF for image: illustrated table]
Fuel type: Gasoline, 1 gallon:
Average price per gallon[A]: $2.62;
Miles per gallon[B]: 10 miles;
Cost per mile: $0.26.
Fuel type: E-85, 1 gallon:
Average price per gallon[A]: $2.27;
Miles per gallon[B]: 7.15 miles;
Cost per mile: $0.32.
Sources: GAO analysis of USPS data.
[A] Average fiscal year 2010 USPS fuel price for gasoline and E85,
according to a Vehicle Programs official.
[B] This figure represents a hypothetical example of the difference in
fuel efficiency between gasoline and E85. It is based on USPS's (1)
estimate of a 27 percent to 30 percent fuel efficiency difference when
using E85, compared to gasoline, and (2) the average cost for these
fuels in fiscal year 2010. We used 28.5 percent--the mid-point of
USPS's estimated fuel efficiency difference--to calculate the
difference in USPS's estimate of fuel efficiency between gasoline and
E85. However, this figure does not necessarily reflect actual fuel
efficiencies realized by USPS.
[End of figure]
The reasons that USPS decided to purchase E85-capable vehicles to meet
legislative requirements and the challenges it faces in fueling these
vehicles with E85 are similar to those of many other federal agencies.
For example, according to DOE data, 87 percent of federal alternative
fuel vehicles acquired to meet EPAct 1992 requirements in fiscal year
2009 were E85-capable vehicles. Furthermore, in fiscal year 2010,
approximately 55 percent of E85-capable vehicles acquired to meet
EPAct 1992 requirements in all federal fleets received a waiver,
allowing them to operate exclusively on gasoline, according to DOE. In
addition, according to DOE officials, a recent DOE analysis--currently
in draft--has found that the majority of federal agencies are not in
compliance with the requirement to fuel unwaived E85-capable vehicles
with E85.[Footnote 27]
Officials from UPS and FedEx Express--companies with missions similar
to USPS's--told us that they see few benefits to owning and operating
E85-capable vehicles and, as a result, they have not purchased any E85-
capable vehicles. Instead, they said that despite higher acquisition
costs, their companies have purchased small numbers of other
alternative fuel vehicles--electric, hybrid, and compressed-natural-
gas-capable vehicles--to lower their companies' fuel costs, reduce
their emissions, and enhance their corporate image.
USPS's Experiences with Other Types of Alternative Fuel Vehicles
Demonstrate Cost and Infrastructure Challenges:
Apart from its experiences with E85-capable vehicles, USPS has a
variety of limited experiences with other types of alternative fuel
delivery vehicles. Collectively, these vehicles accounted for about 2
percent (3,490 vehicles) of its delivery fleet as of September 30,
2010. These vehicles include 3,401 LLVs and 2-ton trucks converted to
run on compressed natural gas,[Footnote 28] 34 LLVs converted to run
on propane, 11 conventional hybrid electric vehicles, 42 plug-in
electric vehicles, and 2 hydrogen fuel cell vehicles.
According to Vehicle Programs officials, while USPS has integrated
these alternative fuel vehicles into its delivery fleet, it has not
invested more heavily in alternative technologies for several reasons.
First, the officials stated that USPS is the only U.S. agency that
requires right-hand-drive vehicles to fulfill its mission and, because
these vehicles are not available commercially, the requirement limits
vehicle choices, regardless of how the vehicles are fueled.[Footnote
29] Second, USPS officials and other experts explained that purchasing
alternative fuel vehicles instead of gasoline-powered vehicles likely
would result in higher estimated lifecycle costs, largely because
their acquisition costs would be significantly higher. While
purchasing some types of alternative fuel vehicles could reduce USPS's
fuel costs, they said, the fuel savings would be unlikely to offset
the higher acquisition costs of the vehicles over their operating
lives because, on average, USPS's delivery vehicles travel only about
17 miles a day. Third, Vehicle Programs officials told us that the
limited availability of alternative fuels and the high costs of
installing fueling infrastructure for them--such as on-site charging
stations for electric vehicles--have made it difficult to elect to
invest in or operate these vehicles. Finally, they noted that USPS has
experienced problems obtaining technological support and parts for
alternative fuel vehicles. For example:
* High acquisition costs have prohibited larger purchases of hybrid
vehicles. When we conducted our site visits, USPS had 12 hybrid
vehicles in its delivery fleet: two 2-ton hybrid trucks in New York
state that were converted to a hybrid power train that USPS received
in 2009, and 10 Ford Escape hybrids in California that were purchased
in 2005. The 2-ton vehicles were converted to hybrid vehicles through
partnerships with manufacturers at no cost to USPS, and it was able to
purchase the 10 Ford Escape hybrids at a cost of about $27,700 in 2010
dollars.[Footnote 30] According to USPS officials, all of these
vehicles have significantly better fuel economy than similar nonhybrid
vehicles in its delivery fleet. However, Vehicle Programs officials
stated that because hybrid vehicles typically cost more to acquire--
$9,000 more in the case of a 2011 Ford Escape hybrid compared to the
nonhyrid version of the same vehicle[Footnote 31]--USPS has not
invested heavily in these vehicles.
* Limited fueling infrastructure and difficulty obtaining parts have
caused USPS to scale back its use of compressed natural gas in
delivery vehicles. In the 1990s, USPS converted about 7,300 LLVs to
operate on compressed natural gas. However, because of fueling
infrastructure issues and parts supply challenges, as of September 30,
2010, USPS had removed this capability from all but 3,372 of these
vehicles. At the conclusion of our review, 42 of these vehicles were
being operated in Corpus Christi, Texas, where the city, to increase
the use of this fuel, helped install needed fueling infrastructure and
provided $400 of fuel for each of these 42 compressed-natural-gas-
capable vehicles (about 200 days of fuel per vehicle, according to
Vehicle Programs officials). The manager of the local vehicle
maintenance facility told us that operating these vehicles on
compressed natural gas has reduced USPS's fuel costs and,
consequently, in January 2011, he was in the process of obtaining 37
additional compressed-natural-gas-capable vehicles from other
locations in Texas. In contrast, USPS's experience in Huntington, New
York, illustrates what Vehicle Programs officials described as more
typical challenges related to USPS's use of compressed natural gas.
Specifically, in the mid-1990s, all of the LLVs at the Huntington post
office were converted to run on compressed natural gas. USPS officials
said the vehicles were run on this fuel for only about 6 months
because--almost immediately--the vehicles had reliability issues and
they faced challenges obtaining replacement parts.
* Parts supply issues caused Ford to recall 500 electric vehicles soon
after their deployment as USPS delivery vehicles. In 1999, USPS,
through a partnership with DOE and several regional and local agencies
in California and New York state, acquired 500 plug-in electric
vehicles from Ford. However, Ford recalled the vehicles soon
afterwards because the vehicle battery manufacturer stopped making the
needed batteries. Ford replaced them with gasoline-powered minivans.
For additional information on USPS's experiences with various types of
alternative fuel vehicles, see appendix II.
USPS's Approach for Addressing Its Delivery Fleet Needs Has Financial,
Operational, and Environmental Trade-offs:
USPS's Approach Is to Maintain Its Current Vehicles While Planning How
to Address Its Longer Term Delivery Fleet Needs:
USPS's current approach is to sustain operations of its delivery
fleet--through continued maintenance--for the next several years,
while planning how to address its longer term delivery fleet needs.
The current approach also anticipates purchasing limited numbers of
new, commercially available minivans, as necessary, to meet its
operational requirements. According to Vehicle Programs officials,
USPS adopted its current approach in December 2005 after senior
management and a Board of Governors subcommittee decided not to
initiate a major replacement or refurbishment of the delivery fleet.
At that time, USPS estimated that fleet replacement--one of the five
options considered--would cost $5 billion for about 175,000 vehicles.
[Footnote 32] Planning and executing a custom-built vehicle
acquisition would take 5 to 6 years from initially identifying the
vehicles' specifications and negotiating with manufacturers through
testing and deploying the vehicles, according to Vehicle Programs
officials. USPS also elected not to refurbish its fleet, another
option considered. According to a USPS contractor, the agency could
have delayed purchasing new vehicles for at least 15 years if it
refurbished its existing LLVs and FFVs (i.e., replaced nearly all
vehicle parts subject to the effects of wear and aging) over a 10-year
period. In 2005, the contractor estimated that refurbishing these
vehicles would cost $20,000 per vehicle--a total cost of about $3.5
billion, assuming that 175,000 vehicles were refurbished. According to
Vehicle Programs officials, USPS chose to sustain its operations
through continued vehicle maintenance pending operational and
financial developments and evolving advancements in vehicle
technologies. Several senior USPS officials told us the agency does
not intend to begin a major vehicle acquisition until 2018 at the
earliest, largely because of financial constraints.
As discussed earlier, USPS's financial condition has since declined
substantially and although USPS issued a 10-year action plan in March
2010 for improving its financial viability, the plan did not describe
a strategy for addressing its delivery vehicle needs. Federal capital
planning principles emphasize the importance of:
* strategically linking agency goals and objectives, such as those
outlined in USPS's action plan, to an agency's capital investment
needs;
* evaluating the capacity of existing agency assets; and:
* identifying alternatives to bridge gaps between current and needed
capabilities.[Footnote 33]
USPS has not analyzed how operational changes proposed in its 10-year
plan, including a potential shift in delivery from 6 days a week to 5
days, would affect its fleet needs or the consequences of its decision
to delay the fleet's replacement or refurbishment. In addition, it has
not developed a plan for financing the strategy it eventually chooses.
However, without the inclusion of this major capital investment need
in its action plan or other documented analysis, USPS's future fleet
needs are unclear, as is USPS's assessment of how urgently it should
replace, or refurbish, much of its aging delivery fleet and how it can
finance such a major capital investment.
According to Vehicle Programs and senior USPS officials, the Vehicle
Programs office is in the early stages of developing a new proposal
for addressing the agency's delivery fleet needs. These officials
stated that the proposal will likely explore several alternatives,
including continuing to maintain the current fleet, refurbishing the
LLVs and FFVs, or, possibly, undertaking a major acquisition of new
vehicles. The proposal also is expected to address a June 2010 USPS
Office of Inspector General recommendation that USPS replace about
20,000 delivery vehicles whose maintenance costs exceeded $5,600
during each of 2 consecutive fiscal years.[Footnote 34] Furthermore,
Vehicle Programs officials stated that the proposal will discuss
strategies for incorporating alternative fuel capabilities into USPS's
next major fleet acquisition. According to Vehicle Programs officials,
USPS expects to present its proposal for consideration by the USPS
Capital Investment Committee later this fiscal year.
USPS Is Uncertain How Best to Incorporate Alternative Fuel Vehicles
into Its Next Major Delivery Fleet Acquisition:
While USPS intends to examine ways to comply with EPAct 1992's
acquisition requirements in its next large-scale acquisition of
vehicles, according to Vehicle Programs officials, life-cycle costs
are significantly higher for nearly all currently available
alternative fuel vehicles than for gasoline-powered vehicles. This is
largely because, given the delivery fleet's low annual mileage, the
savings on fuel associated with alternative fuel vehicles would not be
sufficient to offset the vehicles' higher acquisition costs.
Consequently, these officials told us a large-scale acquisition of
alternative fuel vehicles (other than E85-capable vehicles) is not
likely to be financially viable for USPS. In addition, as discussed
earlier, USPS has concerns about undertaking a large-scale acquisition
of most alternative fuel vehicles because of their potentially higher
infrastructure and operating costs and uncertainties about the
availability of parts and long-term support for rapidly evolving
alternative vehicle technologies. For example, USPS expressed concern
about two recent bills introduced in Congress. One of these bills
would have authorized about $2 billion for, among other purposes, the
purchase of at least 20,000 electric delivery vehicles and the
installation of 24,000 charging stations,[Footnote 35] while the other
bill would have required USPS to ensure that within 5 years at least
75 percent of its fleet would consist of electric vehicles but did not
authorize funding.[Footnote 36] USPS stated that it is concerned about
operating a large portion of its fleet exclusively on electricity
because of the potential for mail delivery disruptions if local
electric grids fail. In addition, USPS expressed concerns about the
availability of parts and potentially high vehicle acquisition,
infrastructure, and battery-replacement costs. Because of these
concerns, USPS commented that if legislation related to the
electrification of its fleet is enacted, it would prefer funding for a
pilot program of roughly 1,000 electric vehicles that it would conduct
in consultation with DOE.
USPS may be able to meet EPAct 1992's light-duty vehicle acquisition
requirements in future vehicle acquisitions by purchasing E85-capable
vehicles without incurring the additional costs that it faced in its
previous acquisitions of these vehicles. According to DOE officials,
more E85-capable vehicles are now available with 4-cylinder engines,
and these engines now can be acquired commercially for little to no
additional cost. However, as discussed earlier, USPS and other federal
agencies often have faced challenges fueling vehicles with E85.
Other federal agencies also face challenges complying with fleet
requirements. As we recently reported, conflicting statutes limit
federal fleet managers' flexibility to reduce their fleets' petroleum
use and greenhouse gas emissions.[Footnote 37] For example, we
reported that federal requirements to purchase alternative fuel
vehicles can undermine the requirement to reduce petroleum consumption
because the fuels' limited availability results in agencies using
gasoline to fuel alternative fuel vehicles. In other work, we reported
that federal fleet requirements do not provide agencies with a means
to set priorities between conflicting requirements. As a result, we
recommended that the Secretary of Energy, in consultation with other
federal agencies, propose legislative changes to resolve the conflicts
and set priorities for complying with the multiple federal fleet
requirements and goals for reducing petroleum consumption, reducing
emissions, managing costs, and acquiring advanced technology vehicles.
[Footnote 38] DOE and GSA are working with other federal agencies to
create a broader, performance-based approach to improve fuel
efficiency and thereby reduce petroleum consumption and greenhouse gas
emissions. The new performance-based approach is intended to provide
federal managers with greater flexibility in improving the fuel
efficiency of their agencies' vehicle fleets.
Vehicle Programs officials stated that, in their view, the best way
for USPS to meet national sustainability requirements for reduced
emissions without incurring significant costs may be to invest in
highly fuel-efficient gasoline-powered vehicles. Such an outcome could
be possible for future USPS delivery fleet acquisitions given
increased legislative flexibility in the definition of what
constitutes an alternative fuel vehicle. Specifically, the National
Defense Authorization Act of 2008 expanded this definition by
permitting federal agencies to meet EPAct 1992's fleet acquisition
requirements for light-duty-alternative-fuel vehicles by purchasing
vehicles that the Environmental Protection Agency has demonstrated
would achieve a significant reduction in petroleum consumption.
[Footnote 39] Based on the agency's demonstration, any low-greenhouse-
gas-emitting vehicle in locations that qualify for a DOE waiver would
be considered an alternative fuel vehicle.
According to manufacturers, environmental organizations, and other
experts we interviewed, gasoline-powered vehicles are becoming more
fuel efficient and producing fewer emissions. As a result, newer
gasoline-powered vehicles are likely to be more fuel-efficient than
USPS's LLVs and FFVs. In addition, purchasing highly efficient
gasoline vehicles would eliminate the fueling infrastructure and parts
supply challenges USPS has faced with some alternative fuel vehicles.
However, because the Environmental Protection Agency evaluates only
commercially available vehicles, at present, there are no low-
greenhouse-gas-emitting right-hand-drive vehicles available that have
been determined to meet EPAct 1992's fleet acquisition requirements
for light-duty vehicles.[Footnote 40] Consequently, if USPS decides to
pursue such a vehicle in its next acquisition of custom-built delivery
vehicles, it would need to work with the manufacturer and the
Environmental Protection Agency to determine if such a vehicle could
meet its operational needs while being considered a low-greenhouse-gas-
emitting vehicle.
Recognizing that vehicles have become more fuel efficient, in February
2011, USPS issued two solicitations to "repower" two existing LLVs by
installing new fuel efficient engines; new transmissions; and all
related equipment, such as new cooling and exhaust systems. One of the
solicitations is for the repowerment of an existing LLV with a fuel-
efficient gasoline engine, while the other is to replace another LLV's
existing gasoline engine with a fuel-efficient diesel engine.
According to the solicitations, each of the two repowered vehicles
must have (1) one of the best fuel economy ratings possible compared
to similar commercially available vehicles and (2) operate on
commercially available fuel. A Vehicle Programs official told us that
USPS expects to award these contracts in April 2011 and to receive the
vehicles in late 2011. According to a Vehicle Programs official,
through operating these vehicles, USPS hopes to gain experience on how
new, more fuel efficient engines would affect the agency's fuel
efficiency and delivery operations.
Current Approach Allows USPS to Defer a Major Capital Investment but
Entails Some High Maintenance Costs, Operational Challenges, and
Delayed Improvements:
USPS's Maintenance Program and Parts Supply Have Enabled USPS to Meet
Its Delivery Mission While Avoiding Capital Costs:
USPS's well-established maintenance program has allowed it to continue
to meet its delivery mission with its current fleet of delivery
vehicles. The program requires a minimum of two preventive maintenance
inspections annually for each of USPS's delivery vehicles. Parts that
are determined to be sufficiently worn or are not expected to last
until the next inspection are expected to be replaced. In addition to
regularly scheduled maintenance, unscheduled maintenance occurs on the
vehicles when needed to (1) resolve problems discovered when letter
carriers perform daily inspections of vehicles prior to beginning
their routes or (2) fix vehicles that break down while carriers are
delivering mail. So that letter carriers have vehicles available to
use while their vehicle is being serviced, about 3 percent of USPS's
delivery vehicles are held in a maintenance reserve. According to USPS
Finance officials, USPS incurred about $1.05 billion in maintenance
and fuel costs for its delivery fleet in fiscal year 2010--which comes
to about $18 per vehicle per day.[Footnote 41] This estimate includes
about $750 million in maintenance costs and about $300 million in fuel
costs.
The USPS Office of Inspector General, which frequently reports on the
vehicle maintenance program, recently reported that USPS's approach of
continuing to maintain its current delivery fleet is operationally
viable and generally cost-effective, given USPS's financial
circumstances.[Footnote 42] Similarly, our custom query of USPS's VMAS
found that delivery vehicles' direct maintenance costs (costs that can
be directly attributed to work on a particular vehicle) have risen
only slightly over the past 5 fiscal years, from a low of about $2,453
per vehicle in fiscal year 2007 to a high of $2,587 per vehicle in
fiscal year 2010 (see figure 7).[Footnote 43] These direct maintenance
costs are somewhat understated because, according to USPS data, about
6 percent of USPS's total maintenance costs--all due to maintenance
performed by contractors--are not entered into VMAS.[Footnote 44]
Figure 7: Annual Average Maintenance Cost Per Vehicle for USPS's
Delivery Fleet over the Past 5 Fiscal Years:
[Refer to PDF for image: line graph]
Fiscal year: 2006;
Average Maintenance Cost Per Vehicle: $2,513.
Fiscal year: 2007;
Average Maintenance Cost Per Vehicle: $2,453.
Fiscal year: 2008;
Average Maintenance Cost Per Vehicle: $2,556.
Fiscal year: 2009;
Average Maintenance Cost Per Vehicle: $2,584.
Fiscal year: 2010;
Average Maintenance Cost Per Vehicle: $2,587.
Source: GAO analysis of USPS data.
Note: The data in this figure are based on our custom query of VMAS.
[End of figure]
USPS's success in keeping its aging delivery fleet operational is also
due to a steady supply of parts for its LLVs and FFVs, according to
Vehicle Programs officials. Since USPS owns more than 160,000 of these
vehicles, it has worked with suppliers to ensure that parts for these
vehicles continue to be available. During our site visits, USPS's
vehicle maintenance managers and technicians routinely informed us
that this steady parts supply will enable them to maintain both types
of vehicles well into the future. According to Vehicle Programs
officials, because of the age of the vehicles, nearly all the LLVs
have had their engines and transmissions replaced at least once, and
often twice, and some of the LLVs have had nearly all their parts
replaced, including their frames. USPS officials stated that it is
more cost-effective to replace delivery vehicle parts as they are
needed than to undertake a general vehicle refurbishment, in which all
major parts are replaced at one time, because replacing parts as
needed avoids costs resulting from premature replacements. While none
of the other fleet operators we spoke with keep their vehicles as long
as USPS plans to keep its LLVs and FFVs, most agreed that replacing
parts as needed can keep vehicles operational at less cost than
purchasing new vehicles.
According to numerous USPS headquarters and field officials at vehicle
maintenance facilities and post offices, as well as letter carriers,
USPS's vehicle maintenance program has thus far supported USPS's
requirements to deliver mail 6 days a week. In part this is because,
according to officials at a number of vehicle maintenance facilities,
the LLV is a well-designed, highly functional vehicle that is easy for
mechanics to work on, and its long-lived aluminum body has held up
well. While some vehicle maintenance facility officials noted problems
with the FFVs--such as engine issues that led to the early replacement
of some engines--in general, they stated that the FFVs also continue
to be reliable and operational. USPS employees at a majority of the
eight vehicle maintenance facilities and some post offices we visited
told us that the delivery vehicles in their locations are in good
condition and that, in their view, the vehicles can continue to
deliver mail without major operational interruptions for at least
several more years. Vehicle maintenance facility managers,
technicians, and letter carriers routinely stressed that they had no
safety concerns about the vehicles despite their advanced age.
[Footnote 45]
One Trade-off of Current Approach Is High Maintenance Costs for Some
Vehicles:
The primary advantage of USPS's current approach for addressing its
delivery fleet needs is that it has allowed USPS to avoid a near-term,
major capital expenditure that it cannot afford. However, this
approach has a number of trade-offs. One trade-off is that USPS has
incurred high costs to maintain some of its delivery vehicles. Our
custom query of VMAS showed that, while most delivery vehicles (about
77 percent) incurred less than $3,500 in annual maintenance costs in
fiscal year 2010,[Footnote 46] about 3 percent (or 5,349) of these
vehicles had more than $7,000 in maintenance costs. In addition, 662
vehicles had more than $10,500 in maintenance costs in fiscal year
2010[Footnote 47]--more than one-third the $31,000 per vehicle
replacement cost USPS currently estimates (see figure 8). According to
USPS officials, in most cases, they repair an LLV or FFV rather than
replace it with a commercially available minivan because of the
continuing need for right-hand-drive vehicles, which are not
commercially available.
Figure 8: Proportion of USPS's Delivery Vehicles in Each Maintenance
Cost Range, Fiscal Year 2010:
[Refer to PDF for image: pie-chart]
Under $3,500: 76.5%;
$3,500 to $6,999: 20.7%;
$7,000 to $10,499: 2.4%;
$10,500 and higher: 0.3%.
Source: GAO analysis of USPS data.
Note: The data in this figure are based on our custom query of VMAS.
[End of figure]
Another reason that some vehicles are incurring high maintenance costs
is that USPS is replacing the frames of LLVs that have significantly
corroded, especially in locations with severe winter weather, such as
the Midwest. In 2008, USPS began requiring that the frames of all LLVs
in high-corrosion locations be visually inspected and measured
annually, using an ultrasonic device that determines the thickness of
the frames at certain points. Frames with holes through the metal were
to be replaced immediately, while frames with less than a desired
thickness at certain key points were expected to be replaced within 6
months. According to Vehicle Programs officials, at least 4,489 LLV
frames have been replaced from fiscal years 2008 through 2010.
Replacing a frame is relatively expensive, not only because of the
cost of the frame but also because a replacement is labor-intensive,
since every part of the vehicle must be removed and reinstalled (see
figure 9). According to Vehicle Programs officials, it typically costs
about $5,000 to replace an LLV frame. None of the other nonpostal
fleet managers we spoke with have replaced their vehicles' frames, and
some of these managers suggested that the need to do so is a key
indication that it is time to replace--not repair--a vehicle.
Figure 9: New LLV Frames Awaiting Installation (left), and an LLV
Being Reassembled after a Frame Replacement (right), 2010:
[Refer to PDF for image: 2 photographs]
Source: GAO.
[End of figure]
Another Trade-off of Current Approach Is Increasing Unscheduled
Maintenance Costs, Which Can Have Operational Impacts:
In addition to its overall maintenance costs, USPS's unscheduled
maintenance costs have increased steadily, according to data from its
VMAS reports. Unscheduled maintenance can result in delays in mail
delivery and operational costs, such as overtime expenses. To reduce
operational costs, USPS, like other fleet operators, attempts to
minimize unscheduled maintenance. USPS's goal is to ensure that no
more than 20 percent of its total annual maintenance costs are for
unscheduled maintenance. However, according to a September 30, 2010,
VMAS report, about 31 percent of USPS's annual maintenance costs were
for unscheduled maintenance--11 percentage points more than USPS's
goal. Furthermore, USPS has not met its unscheduled maintenance goal
in any of the last 6 fiscal years.[Footnote 48] USPS's unscheduled
maintenance costs also are likely to be higher than the amounts
reflected in VMAS because, according to headquarters officials and
some vehicle maintenance facility managers we spoke with, nearly all
of the 6 percent of maintenance costs that are currently not captured
in VMAS are for unscheduled maintenance.[Footnote 49] Thus, for fiscal
year 2010, USPS's unscheduled maintenance costs could have been as
high as about 37 percent of its total maintenance costs. During our
site visits, several local postal officials told us they are
experiencing more operational issues due to vehicle breakdowns, which
can lead to increased overtime costs. USPS could not provide us with
the costs of these operational issues because USPS's time-keeping
systems do not link costs such as overtime incurred by postal
supervisors and letter carriers to vehicle breakdowns. We discussed
the feasibility of capturing these costs with Vehicle Programs
officials. They said that VMAS performance indicator reports track
unscheduled maintenance, and management is aware of the operational
impacts and costs.
In addition to the increasing rate of unscheduled maintenance, we
identified some instances of maintenance issues during our site
visits. For example:
* We saw two rusted and partially missing body mounts on an LLV in
Florida, which was on a lift when we visited in October 2010. While
the frame bolts, which hold the frame to the vehicle, were intact, the
lower half of the body mounts and retaining washers were missing. A
maintenance assistant at the site indicated that, given the severity
of the rust (see figure 10), the problem could not have occurred in
the 5 months since the LLV's last scheduled inspection in May 2010.
Additionally, while we did not observe this issue, this individual
told us that nearly all 31 LLVs at his post office had bald tires when
he assumed the maintenance assistant position in 2009.[Footnote 50]
Figure 10: Example of Rust in Lower Half of Body Mount at a Post
Office in Florida, 2010:
[Refer to PDF for image: 2 photographs]
Source: GAO.
[End of figure]
* When we visited a vehicle maintenance facility in New York state,
technicians were replacing two severely corroded LLV frames with holes
through the metal. The manager of this facility informed us that
frames in this condition (see figure 11) should have been replaced
during a previous preventive maintenance inspection. According to the
manager, this did not occur, possibly because the inspections were
done by contractors who did not follow USPS's requirements for
inspecting frames. According to the manager, the vast majority of the
2,800 delivery vehicles at this vehicle maintenance facility are sent
to contractors for maintenance because he has chosen to focus his
facility's limited resources on servicing USPS-owned tractor trailers
used for hauling mail.
Figure 11: Rusted Frame with Holes Being Replaced in a USPS Vehicle
Maintenance Facility in New York State, 2010:
[Refer to PDF for image: photograph]
Source: GAO.
[End of figure]
* Similarly, officials at a Minnesota vehicle maintenance facility
told us that they are not following USPS's requirements for replacing
frames whose thickness in key spots indicates weakness; instead, they
said, facility personnel replace frames only when they have one or
more holes through the metal. According to officials at this facility,
given the state's severe winter weather, the facility has a large
number of vehicles with thin frames. While these vehicles meet USPS's
frame replacement requirements, officials at the maintenance facility
told us that they do not have the resources (typically $5,000 per
vehicle) to replace them all in the short term.
Minivan Purchases Have Provided USPS with Needed Vehicles, but Have
Also Decreased Standardization, Resulting in Operational and Other
Challenges:
USPS's current approach for dealing with its aging delivery fleet has
significantly increased the number of left-hand-drive vehicles in the
delivery fleet over time. Specifically, because USPS does not
currently have the funds available to acquire new custom-built, right-
hand-drive vehicles, it now has 22,100 left-hand-drive minivans in its
delivery fleet. According to Vehicle Programs officials and officials
at two post offices that had a mix of minivans and right-hand-drive
vehicles, minivans can pose a problem because, since they cannot be
effectively used on the more than 50,000 delivery routes that require
right-hand drive, they reduce USPS's operational flexibility.
Furthermore, during our site visits, officials at several vehicle
maintenance facilities stated that, unlike for LLVs and FFVs, USPS has
encountered maintenance challenges for its minivans. According to
these officials, maintaining the older minivans--some of which have
met or exceeded their expected 10-year operating lives--has become
increasingly difficult, and they are experiencing problems securing
parts. According to Vehicle Programs officials, manufacturers
typically produce parts for commercially available vehicles for 10
years, and officials told us that USPS does not have sufficient
numbers of minivans to maintain its own market for parts for
subsequent years, as it does for the LLVs and FFVs. Consequently, some
of the older minivans are being used as salvage for parts for
operational vehicles (see figure 12).
Figure 12: A Ford Windstar Minivan Being Repaired at a Postal Vehicle
Maintenance Facility (left) and a Nonoperational Minivan Up on Blocks
Being Used for Parts (right), 2010:
[Refer to PDF for image: 2 photographs]
Source: GAO.
[End of figure]
Other Trade-offs Include Delayed Improvements in Emissions, Fuel
Efficiency, and Design:
While new USPS delivery vehicles could potentially provide
environmental benefits such as reduced emissions and increased fuel
efficiency, it is not possible to quantify these benefits because USPS
has not decided when, what type of vehicles and how many it may
acquire, or how many old vehicles it may replace. Furthermore, such an
analysis would depend on other factors, such as the relative extent to
which USPS uses these new vehicles compared to the retired vehicles.
Nevertheless, it is likely that new delivery vehicles would (1) be
more fuel efficient than the LLVs and FFVs, and thus to some extent
produce lower greenhouse gas emissions, and (2) meet more stringent
federal light-duty emissions standards for carbon monoxide and other
particulate matter.
According to Vehicle Programs officials, USPS's current fleet approach
also makes it more challenging and costly to incorporate design
improvements into its fleet that could provide operational benefits.
Such improvements could include design features that could increase
letter carriers' comfort and safety, such as features designed to
reduce blind spots when the carriers merge from the right side of the
road.[Footnote 51]
Without Significant Improvement in USPS's Financial Condition, There
Are No Clear Options to Fund a Major Vehicle Replacement:
USPS's Financial Condition Poses a Significant Barrier to Funding a
Delivery Fleet Replacement:
USPS's financial condition poses a significant barrier to its ability
to fund a major acquisition of its delivery fleet[Footnote 52]--a cost
USPS recently estimated would be about $5.8 billion to replace about
185,000 delivery vehicles with new gasoline-powered custom-built
vehicles, at a cost of about $31,000 per vehicle (in 2011 dollars).
[Footnote 53] As we have reported, continuing operational losses have
constrained funding for USPS's capital investments.[Footnote 54]
USPS's annual purchases for property and equipment have steadily
declined over the past 4 years, from $2.7 billion in fiscal year 2007
to $1.4 billion in fiscal year 2010. For fiscal year 2011, USPS
budgeted $1.3 billion for capital investments and reported that
expenditures for these investments will continue to decline as USPS
seeks to conserve its cash.[Footnote 55] USPS projects an end-of-year
cash shortfall of $2.7 billion for fiscal year 2011, meaning that it
does not expect to have sufficient cash to meet all of its financial
obligations, jeopardizing its operations. At the same time, while
federal capital planning principles emphasize the importance of, among
other actions, evaluating the capacity of existing assets and
identifying alternatives to bridge the gap between current and needed
capacities, as discussed previously, USPS has not developed a strategy
for how and when it will invest in a major acquisition of new delivery
vehicles.
In the past, USPS funded major capital investments through a
combination of (1) net income from its earnings from postage and other
postal products and services, (2) rate increases designed to increase
its income, or (3) debt financing. However, these methods are likely
to be inadequate to finance a major delivery fleet replacement in the
foreseeable future, for the following reasons:
* Net income. Although USPS can retain earnings that could be used to
finance a major acquisition of delivery vehicles, such earnings appear
unlikely because it projects a $6.4 billion loss for fiscal year 2011
and continuing large financial losses for the foreseeable future. USPS
expects revenues to stagnate in the next decade with losses due to
continued declines in mail volumes--particularly for profitable First-
Class Mail, its core product. This means that USPS can no longer rely,
as it once did, on growth in mail volumes to help cover its costs.
Meanwhile, USPS's progress in reducing its costs through rightsizing
its operations and realigning its workforce is limited by a
combination of stakeholder resistance and statutory requirements, as
we have previously reported.[Footnote 56]
* Rate increases. Rate increases also appear unlikely to generate
sufficient revenues to fund a major delivery fleet replacement because
under the Postal Accountability and Enhancement Act of 2006,[Footnote
57] such increases are now generally limited by an inflation-based
price cap on USPS's market-dominant products--products that generate
close to 90 percent of its revenue.[Footnote 58] Moreover, even if the
price cap did not constrain rate increases, large rate increases could
be self-defeating because they could potentially trigger large,
permanent declines in mail volumes.
* Debt financing. USPS's outstanding debt at the end of fiscal year
2010 was $12 billion, and it expects to use the remaining $3 billion
of its $15 billion in borrowing authority in fiscal year 2011 to fund
non-vehicle-related expenditures.
USPS and Others See Little Potential to Finance a Fleet Replacement
through Grants or Partnerships, Including Joint Procurements:
By statute, USPS is generally not subject to federal contracting and
budgeting laws.[Footnote 59] As a result, USPS officials told us that
USPS has the authority to accept grant funding and to enter into joint
procurements and other partnerships to assist in a major delivery
fleet replacement. However, USPS's use of federal or state grants
could have public policy implications, because USPS is supposed to be
self-sustaining and to cover its operating costs with post-related
revenues. In addition, fair competition issues or concerns about
sharing sensitive procurement information could arise if USPS actively
pursued a partnership or joint procurement.
USPS and DOE officials stated that there are few opportunities for
USPS to receive federal grant funding to help it purchase vehicles, in
part because federal grants are typically targeted to state, local, or
city governments, or to nonprofit or educational organizations. In the
past, USPS has obtained state or local grants for limited numbers of
alternative fuel vehicles or related infrastructure, and in one case
it received some financial assistance from DOE. Specifically, in 1999,
USPS partnered with a number of entities, including the California
South Coast Air Quality Management District, DOE, and others, on an
agreement formed to reduce air pollution in California. This agreement
included about $9 million in funding subsidies from these entities to
purchase 500 electric vehicles from the Ford Motor Company (Ford) as
well as to install charging stations for these vehicles.[Footnote 60]
USPS paid an additional $11.6 million to Ford for these vehicles.
According to USPS officials, the $9 million in outside funding--a
small fraction of the estimated $5.8 billion to replace the largest
portion of its delivery fleet--is the largest amount of outside
funding USPS has received for vehicle acquisitions. The project was
terminated after about 2 years because of battery problems, as
discussed previously in this report.
Senior USPS officials also stated that there is little likelihood that
a joint procurement arrangement could help finance a delivery fleet
replacement. According to USPS, UPS, and FedEx Express officials, a
primary barrier to a joint procurement is USPS's need for customized,
right-hand-drive delivery vehicles similar in size to the LLV and FFV
(UPS and FedEx Express typically use larger vehicles and do not need
right-hand-drive capability). Officials from DOE, private companies
related to vehicle manufacturing and fuel, and an environmental
organization that works on vehicle fleet issues confirmed USPS's
assessment, indicating that it is unlikely that USPS would be able to
obtain financial help through existing mechanisms for acquiring new
delivery vehicles. USPS officials also stated that they are not
actively pursuing grants, joint acquisitions, or other partnership
agreements.
Finally, according to a senior USPS attorney, it is unlikely that it
would be feasible for USPS to enter into an energy savings performance
contract to help finance a major delivery fleet acquisition. Such
contracts are used to privately finance improvements in energy
efficiency.[Footnote 61] Under an energy savings performance contract,
federal agencies enter into a long-term contract (up to 25 years) with
a private energy services company under which the company installs
energy-efficiency improvements financed from private funds. The agency
then repays the company out of the estimated annual savings expected
to be generated from the improvements. USPS officials stated that the
agency used this type of financing for building improvements and has
considered their applicability to a major fleet acquisition. However,
USPS officials said that USPS has largely stopped using these
contracts.[Footnote 62] Furthermore, given the low annual mileage of
USPS's delivery fleet, USPS and DOE officials stated that it is
unlikely that the fuel savings generated from a more efficient fleet
(whether consisting of gasoline-only vehicles or alternative fuel
vehicles) would be sufficient, compared with the acquisition cost of
the vehicles, to interest a private investor.
Congressional Actions to Improve USPS's Financial Condition Could Help
USPS Fund a Delivery Fleet Replacement but Present Difficult Policy
Issues and Trade-offs:
In April 2010, we reported that Congress and USPS need to reach
agreement on a package of actions so that USPS can become financially
viable, and we recommended that in doing so, Congress consider
providing financial relief, such as by revising its retiree health
benefit funding and requiring any binding arbitration to take USPS's
financial condition into account, as well as consider all cost cutting
options.[Footnote 63] Agreeing on a package of actions will involve
difficult public policy issues and trade-offs. However, depending on
the specific actions adopted, USPS's follow-up, and the results, such
an agreement could help enable the funding of a major acquisition of
delivery vehicles.
Although USPS is authorized to request appropriations for costs
related to "public service,"[Footnote 64] it has not received an
appropriation for operational costs since fiscal year 1982. USPS
receives annual appropriations to fund statutorily required mail
services at free or reduced rates, such as free mail for the blind and
overseas voting, but these funds represent a very small percentage of
its revenues.[Footnote 65] However, USPS has benefited from taxpayer
funding in special circumstances. For example, Congress appropriated
$587 million in 2002 and $507 million in 2004 to help pay for safety
measures after letters containing anthrax contaminated the mail in
2001.
Providing appropriations would be another alternative to fund the
multi-billion-dollar replacement of USPS's delivery fleet.[Footnote
66] Such appropriations could ensure the future viability of USPS's
delivery fleet, and--if alternative fuel vehicles are specified by
legislation or chosen by USPS--could potentially yield additional
benefits, particularly for manufacturers and suppliers of alternative
fuel vehicles. In addition, regardless of the technology selected, new
vehicles likely would be more fuel efficient and produce lower
environmental emissions than USPS's current vehicles. However, this
option also has difficult public policy trade-offs and would raise
questions about whether the economic benefits would be sufficient to
justify the costs. For example, appropriations would raise the federal
budget deficit, would reduce incentives for USPS to be self-
supporting, and could further limit USPS's flexibility in determining
the best vehicles for its fleet.
Conclusions:
USPS faces severe financial challenges and, for the foreseeable
future, cannot afford to replace or refurbish a large portion of its
aging fleet. USPS's March 2010, 10-year action plan for addressing its
financial challenges did not (1) describe a strategy for addressing
its delivery fleet needs or (2) identify how the operational changes
proposed in this plan would affect its future fleet needs.
The trade-offs of continuing to maintain USPS's delivery fleet until
USPS decides how to address its longer term delivery fleet needs are
numerous and include somewhat higher maintenance costs overall. For
each of 662 delivery vehicles in fiscal year 2010, USPS incurred
maintenance costs of more than $10,500--more than one-third the
$31,000 per-vehicle replacement cost USPS estimates as of 2011.
Furthermore, these high vehicle costs were experienced in each of the
four prior fiscal years that we analyzed. These costs largely arise
from USPS's need for right-hand-drive vehicles at a time when it
cannot purchase these vehicles, yet remains contractually required to
supply thousands of them to rural letter carriers. Related to this,
delays in acquiring new delivery vehicles have caused USPS to replace
about 4,500 thin and, in some cases, severely corroded LLV vehicle
frames in fiscal years 2008 through 2010--at a cost of $5,000 per
vehicle. If not for the critical need for right-hand-drive vehicles,
the need to replace these frames may have caused USPS to replace--not
repair--them. USPS's approach also has resulted in increasing
unscheduled maintenance costs, which create operational difficulties.
Finally, delays in acquiring custom-built, right-hand-drive vehicles
have increased the number of left-hand-drive vehicles in the delivery
fleet by more than 19,000 since 2006, even though these vehicles
cannot effectively operate on more than a quarter of USPS's delivery
routes.
Despite these operational impacts, USPS's approach of continued
maintenance has been reasonable given its pressing need to defer an
estimated $5.8 billion capital outlay for a major vehicle replacement
or a major refurbishment, estimated at $3.5 billion in 2005. However,
the time soon will come when the cost and operational consequences of
this approach will not allow further delays. When that time comes,
USPS will need to know how it can best comply with federal
requirements for acquiring alternative fuel vehicles while also
meeting its operational requirements. Consequently, USPS must develop
a comprehensive strategy for dealing with this inevitability.
As we have reported, Congress and USPS need to reach agreement on a
package of actions to restore USPS's financial viability, which will
enable USPS to align its costs with revenues, manage its growing debt,
and generate sufficient funding for capital investment, including the
inevitable replacement or refurbishment, of its delivery
fleet.[Footnote 67] However, until USPS defines its strategy for a
major capital investment for its delivery vehicles, neither USPS nor
Congress has sufficient information to fully consider its options.
Recommendation for Executive Action:
Given USPS's need to ensure that its delivery fleet remains
operationally viable and maintain its legal mandate to purchase
alternative fuel vehicles and use alternative fuel in them, we
recommend that the Postmaster General develop a strategy and timeline
for addressing USPS's delivery fleet needs. This effort should address:
* the effects of USPS's planned operational changes and continuing
changes in customers' use of the mail on future delivery fleet
requirements;
* the range of strategic options available (including continuing to
maintain, not replace, its fleet), as well as the costs and time
frames for these options;
* an analysis of any safety consequences associated with extending the
vehicles' operational lives; and:
* alternative ways to comply with federal fleet requirements,
including an analysis of how USPS can best meet these requirements,
given its budget constraints.
Agency Comments:
USPS provided written comments on a draft of this report by letter
dated April 13, 2011. These comments are summarized below and are
reprinted in appendix III. USPS agreed with our findings and
recommendation to develop a strategy and timeline for addressing its
delivery fleet needs. In commenting on our recommendation, USPS stated
that it is developing a strategy to address the immediate and long-
term needs of its delivery fleet, and that it planned to complete the
strategy and timeline by the end of December 2011. USPS also stated
that, while many alternatives exist for future delivery vehicles,
ultimately, operational requirements and the total cost of ownership--
including investment costs, infrastructure, life cycle maintenance,
and support costs--will be the drivers behind any technology selection
decision. In addition, USPS emphasized that given its current
financial condition, the availability of capital funds also will be a
primary factor in any investment decision. USPS also provided minor
technical comments via email, which we incorporated as appropriate.
As agreed with your offices, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the report date. At that time, we will send copies to appropriate
congressional committees and USPS. We will also make copies available
to others on request. In addition, the report will be available at no
charge on the GAO Web site at [hyperlink, http://www.gao.gov].
If you or your staff have any questions about this report, please
contact me at herrp@gao.gov or (202) 512-2834. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. Key contributors to this report are
listed in appendix IV.
Signed by:
Phillip Herr:
Director, Physical Infrastructure Issues:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
In response to interest in issues related to the United States Postal
Service's (USPS) vehicle fleet, the objectives of this report were to
answer the following key questions: (1) What is the profile of USPS's
delivery fleet? (2) How has USPS responded to requirements for
alternative fuel vehicles, what experiences has it had with
alternative fuel vehicles, and what has it learned from its
experiences? (3) What, if any, approach has USPS adopted to address
its delivery fleet needs, and what are the trade-offs of this
approach? (4) What options exist to help USPS fund a major acquisition
of delivery vehicles?
The following sections describe the procedures we undertook to answer
these questions. In addition, we conducted background research to
inform our review. We reviewed prior GAO reports, including our work
on USPS's financial condition and options Congress could consider to
address USPS's financial condition; federal vehicle fleets;
alternative fuel vehicles; capital planning; internal controls; and
energy savings performance contracts. We analyzed financial and
operating information from USPS, including its annual reports, audited
financial reports, 10-year action plan, strategic sustainability
performance plan, contractual obligation to provide right-hand-drive
vehicles to rural carriers, and fleet management handbook. We reviewed
analyses of USPS's fleet conducted by USPS officials, private
consultants to USPS, and the USPS Office of Inspector General. In
addition, we reviewed documents prepared by the Department of Energy
(DOE) and the General Services Administration on issues related to
federal vehicle fleets as well as presentations and reports provided
at an annual federal fleet conference and at monthly meetings of
federal fleet managers. We reviewed USPS and DOE data on the number of
waivers USPS applied for and received exempting it from fueling its
alternative fuel vehicles with alternative fuel. Furthermore, we
reviewed federal legislation that establishes requirements related to
federal fleets, including the Energy Policy Act of 1992, the Energy
Policy Act of 2005, the Energy Independence and Security Act of 2007,
and the National Defense Authorization Act of 2008. In addition, we
reviewed executive orders related to federal vehicle fleets.
Analysis of Data from USPS on Its Vehicle Fleet:
To determine the profile of USPS's delivery fleet, the fleet's
maintenance costs, and the trade-offs of the agency's approach for
addressing its delivery fleet needs, we obtained and analyzed data
from a custom query of USPS's Vehicle Management Accounting System
(VMAS), the database the agency uses to manage its vehicle fleet. We
assessed the reliability of the data by:
* performing electronic testing and visual review of data elements for
obvious errors and inconsistencies,
* reviewing reports related to VMAS, and:
* interviewing agency officials knowledgeable about VMAS system
controls and vehicle data procedures.
Through discussions with knowledgeable USPS and USPS Office of
Inspector General officials, we learned that USPS staff enter data
manually into VMAS and, as a result, some contractor costs for
maintenance are not entered into VMAS, which has the effect of
understating USPS's vehicle maintenance costs in VMAS. USPS and USPS
Office of Inspector General officials agreed that manual data entry is
a major limitation of VMAS.
To identify the contractor costs that were not reported in VMAS, and
were therefore missing from our custom query of this database, we
compared the total contractor costs reported in VMAS with the total
contractor costs reported in another USPS data system, the Enterprise
Data Warehouse system. According to USPS finance officials, the
Enterprise Data Warehouse captures data from accounts payable, feeds
into the general ledger, and is used to supply information to the
financial reporting system USPS uses for its audited financial
statements. Thus, according to these officials, it provides the most
reliable information available on USPS's costs. To assess the
reliability of the Electronic Data Warehouse's data, we (1)
interviewed officials knowledgeable about the data and (2) compared
our results to those of the USPS Office of Inspector General, which
had previously reported on discrepancies between data in the
Electronic Data Warehouse and VMAS. Based on this assessment, we
determined that the VMAS data were sufficiently reliable for the
purposes of this report, as long as we clearly noted the percentage of
maintenance costs missing from VMAS as determined by comparing the
total maintenance costs recorded in VMAS with the total maintenance
costs recorded in the Electronic Data Warehouse.
Using a custom query, we obtained VMAS data for all USPS vehicles for
fiscal years 2006 through 2010, including the vehicles' annual
maintenance costs. To analyze information on the delivery fleet, we
defined this fleet as all vehicles with one of eight function codes
based on the advice of knowledgeable USPS officials.[Footnote 68] USPS
officials agreed that the universe established through this process
resulted in an accurate representation of its delivery fleet.
In addition to analyzing the VMAS data we obtained through a custom
query, we reviewed reports generated by VMAS (VMAS reports) and other
USPS documentation, including information on the number of alternative
fuel vehicles in USPS's delivery fleet. USPS officials stated that
they typically use VMAS reports to manage the fleet. Because these
reports categorize vehicles by make and model rather than by function,
the total universe of delivery vehicles represented in these reports
is slightly different from the universe we obtained through our
analysis of the custom query and, thus, the numbers cannot be directly
compared. USPS officials recommended that we use the information from
the agency's VMAS reports, rather than our custom query, to determine
the number of delivery vehicles in past fiscal years, because the
accuracy of the VMAS reports has been tested over time whereas the
custom query was a new capability. Consequently, we used data from the
VMAS reports to analyze changes in the numbers of delivery vehicles
for fiscal years 2006 through 2010. On the other hand, Vehicle
Programs officials agreed that the information we obtained through the
custom query was sufficiently reliable to develop average per vehicle
maintenance costs over the past 5 fiscal years and to analyze the
number and maintenance costs of delivery vehicles in fiscal year 2010.
Using both the data obtained through our custom query and the data
provided by USPS from its VMAS reports, we developed a profile of
USPS's delivery fleet from fiscal years 2006 through 2010, including
maintenance costs. To analyze maintenance costs, we excluded costs
related to fuel and accidents. To exclude costs related to accidents,
we obtained information on the number and causes of vehicle accidents
from USPS's accident reporting database for fiscal years 2006 through
2010. We assessed the reliability of these data by (1) performing
electronic testing and visual review of data elements for errors, (2)
reviewing existing USPS information about the accident reporting
database, and (3) interviewing agency officials knowledgeable about
the data. We determined that these data were sufficiently reliable for
the purposes of this report. Because USPS's accident reporting
database and VMAS use unique vehicle identification numbers to
identify each vehicle, we were able to cross match these numbers in
the two databases to identify vehicle maintenance costs due to
accidents. We subtracted these costs from USPS's total maintenance
costs to obtain the total maintenance costs not related to accidents,
as reported in VMAS.
Finally, we worked with USPS Finance and Vehicle Programs officials to
get an agency estimate of the total costs attributable to delivery
fleet maintenance and fuel in fiscal year 2010. USPS officials used a
combination of VMAS reports and data in the Enterprise Data Warehouse
to develop this estimate, which includes all direct costs and some
indirect costs related to the delivery fleet's maintenance and fuel
use in fiscal year 2010.[Footnote 69] We compared this estimate with
cost summaries provided by USPS Finance officials and other USPS
documentation supporting amounts reported in the agency's audited
financial statements for fiscal year 2010 and determined that the
agency's estimate of $1.05 billion in total maintenance and fuel costs
for its delivery fleet in fiscal year 2010 was reasonable.
USPS's estimate of $1.05 billion includes about $750 million in
identifiable direct and indirect maintenance costs, or a total of
about $3,900 in maintenance-related costs per vehicle.[Footnote 70]
Our custom query of VMAS showed about $497 million in direct
maintenance costs in fiscal year 2010, or about $2,600 per vehicle.
Several factors account for the difference in costs between the
agency's estimate and the results of our custom query. First, VMAS
does not capture indirect maintenance costs and, instead, tracks only
costs that can be directly associated with the vehicles' maintenance.
Thus, the lower maintenance cost figure produced from our analysis
does not include costs that can not be specifically allocated to
maintenance on a delivery vehicle. For example, VMAS includes costs
for parts and direct labor to inspect a vehicle and replace brakes and
other equipment, but does not include supervisory and management labor
costs, or the benefits it pays to these employees.[Footnote 71]
Second, while VMAS includes a large portion of its direct labor costs
for technicians who service delivery vehicles, unlike USPS's estimate,
VMAS does not account for these employees' full labor costs.[Footnote
72] Third, according to USPS data, about 6 percent of USPS's total
maintenance costs--all due to maintenance performed by contractors--
are not entered into VMAS,[Footnote 73] but are included in the
agency's $750 million estimate of total maintenance costs for fiscal
year 2010. Finally, while costs related to accidents are contained in
USPS's total cost estimate, we removed these costs from our analysis
of maintenance costs.
Site Visits:
To inform our understanding of USPS's delivery fleet profile, its
experiences with alternative fuel vehicles, and its approach to its
aging fleet, we conducted site visits to three regions: Minneapolis
and St. Paul, Minnesota; New York City, New York; and southern
Florida. We judgmentally selected these regions because they are
geographically diverse and their climates vary--two of the three
regions experience severe winter weather. In addition, the three
regions use different types of alternative fuel vehicles and a variety
of gasoline-fueled delivery vehicles. During each site visit, we
visited a combination of vehicle maintenance facilities and post
offices. We toured facilities, observed the maintenance activities
occurring on vehicles at the facilities, and interviewed managers,
supervisors, mechanical technicians, and carriers about their
experiences with the delivery fleet. Finally, while we did not visit
the vehicle maintenance facility in Corpus Christi, Texas, we selected
this site for a telephone interview because, according to Vehicle
Programs officials, it is one of the few areas where compressed
natural gas is still being used in delivery vehicles that have been
converted to use this fuel.
Interviews:
To inform all of our objectives, we interviewed a wide range of USPS
officials as well as officials from DOE, General Services
Administration, and the Postal Regulatory Commission. In addition, we
interviewed representatives from 22 nonfederal entities, including
alternative fuel associations, automobile manufacturers and
associations, environmental groups, companies that operate large
delivery fleets, and consulting firms with experience evaluating
vehicle fleets. To identify appropriate parties to interview, we spoke
with knowledgeable GAO staff, USPS officials, and others about which
entities would have information most relevant to our objectives. Table
4 identifies the nonfederal organizations whose representatives we
interviewed.[Footnote 74]
Table 4: Nonfederal Organizations Interviewed:
Organizations:
Association of International Automobile Manufacturers.
Azure Dynamics.
Booz Allen Hamilton.
Clean Energy Fuels Corporation.
Chrysler[A].
Eaton Corporation.
Environmental Defense Fund.
Electric Drive Transportation Association.
FedEx Express.
Ford Motor Company.
General Motors.
Growth Energy.
International Council on Clean Transportation.
Mercury Associates.
National Rural Letter Carriers' Association.
Natural Gas Vehicles for America.
Nissan Motor Company.
Pacific Gas and Electric Company.
San Diego Gas and Electric.
Southern California Edison.
United Parcel Service.
U.S. Fuel Cell Council.
Source: GAO.
[A] Chrysler responded to questions via e-mail, not an interview.
[End of table]
We conducted this performance audit from February 2010 to May 2011 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
[End of section]
Appendix II: USPS's Experiences with Non-E85-Capable Alternative Fuel
Vehicles:
USPS has had the following experiences with alternative fuel vehicles
(other then E85-capable vehicles).
Compressed Natural Gas Vehicles:
USPS currently has more compressed-natural-gas-capable vehicles than
any other kind of alternative fuel vehicle (except E85-capable
vehicles), but its use of these vehicles has greatly diminished in
recent years. Beginning in 1990, USPS began converting long-life
vehicles (LLV) in selected locations to run on both compressed natural
gas and gasoline. USPS converted about 7,300 LLVs over 6 years at a
cost of about $2,000 each in the 1990s. Local utility companies, DOE's
Clean Cities program, and others installed the fueling infrastructure.
According to a Vehicle Programs official, only in limited instances
did USPS actually fund any portion of these costs. However, because of
parts supply challenges, limited fuel availability, and expiring
compressed natural gas fuel tanks,[Footnote 75] USPS removed this
capability from all but about 3,400 of these LLVs. About 1,000 of
these LLVs are currently running on compressed natural gas.
According to USPS, 42 of the approximately 1,000 compressed-natural-
gas-capable vehicles are being operated in Corpus Christi, Texas,
because the city created the necessary fueling infrastructure and
helped pay USPS's fuel costs. For example, according to a local
vehicle maintenance facility official, the city built a gas line
connecting a nearby compressed natural gas station to the city's post
office and provided the post office with $400 worth of free compressed
natural gas (about 200 days of fuel, according to a Vehicle Programs
official) for each of the vehicles there. According to an official at
the local vehicle maintenance facility, these vehicles have been
reliable and have reduced USPS's fuel costs because (1) the city
provided free fuel and (2) compressed natural is cheaper than gasoline
for those vehicles that have already used their supply of free fuel.
According to this official, because of USPS's fuel cost savings, as of
January 2011, the official was in the process of swapping 37 of the
facility's gasoline-only LLVs for compressed-natural-gas-capable LLVs
(from other USPS locations) increasing the number of LLVs operating on
this fuel to a total of 79 vehicles at two post offices in Corpus
Christi, Texas. In contrast, USPS's experience with compressed natural
gas in Huntington, New York, highlighted challenges that led USPS to
abandon its use of compressed natural gas in this area. In the mid-
1990s, USPS converted all of the LLVs at the Huntington post office to
run on compressed natural gas and installed associated fueling
infrastructure (one pump per vehicle). However, within 6 months of
using these vehicles, USPS experienced vehicle reliability problems,
two of the three manufacturers of vehicle conversion kits went out of
business, and USPS experienced difficulties in obtaining parts needed
for maintenance and repairs. As a result the fueling infrastructure is
unused (see figure 13). While Vehicle Programs officials recognize
that the use of compressed natural gas has been successful in some
parts of Texas, they stated that they see limited potential for USPS's
future use of this fuel in delivery vehicles, largely because the
natural gas infrastructure is not available in much of the United
States and parts supplies remain uncertain.
Figure 13: Example of an Unused Compressed Natural Gas Fuel Pump at a
Post Office in Huntington, New York, 2010:
[Refer to PDF for image: photograph]
Source: GAO.
[End of figure]
Propane Vehicles:
As of September 30, 2010, USPS operated 34 LLVs in Key West, Florida,
that are capable of running on propane in addition to gasoline.
According to USPS local officials, these vehicles have been well
received by the community because of their reduced emissions and USPS
has faced few challenges operating and fueling the vehicles. However,
according to USPS officials, USPS did not expand its use of propane
because of the lack of propane infrastructure.
Plug-in Electric Vehicles:
USPS has been using limited numbers of plug-in electric vehicles for
many years. In 1999, for example, USPS entered into a partnership with
DOE and several state, regional, and local agencies in California and
New York state and invested $11.6 million to purchase 500 plug-in
electric vehicles from Ford. However, Ford recalled the vehicles about
2 years later because the vehicle battery company stopped
manufacturing the batteries.[Footnote 76] As of September 30, 2010,
USPS operated about 30 plug-in electric 2-ton vehicles in New York
City, New York, as well as 12 T-3 plug-in electric personal mobility
delivery vehicles that USPS purchased in 2008 at an average cost of
about $11,200 in 2010 dollars (see figure 14). While USPS reports that
the T-3 vehicles cost less than 5 cents per mile to operate,
operational challenges, such as letter carrier exposure to the
elements, a tendency to stall in the rain, and low operating speed
limit their applicability on USPS routes. Furthermore, USPS is
currently testing four neighborhood electric vehicles[Footnote 77] and
recently initiated a program called the Electric LLV Program under
which five suppliers are converting gasoline LLVs to plug-in electric
LLVs that USPS intends to use for deliveries.[Footnote 78]
Figure 14: T-3 Electric Personal Mobility Delivery Vehicle, 2010:
[Refer to PDF for image: photograph]
Source: GAO.
[End of figure]
Conventional Hybrid (Hybrid) Vehicles:
When we conducted our site visits, USPS's use of hybrid vehicles was
limited to 12 vehicles, including two 2-ton hybrid trucks[Footnote 79]
in New York state that it had received in 2008 and 2009 at no cost to
USPS because the manufacturers agreed to provide these vehicles to
USPS in order to obtain information on their use on the delivery cycle
(see figure 15).[Footnote 80] In addition, USPS had 10 Ford Escape
hybrids in California that it purchased in 2005 at an average cost of
about $27,700 in 2010 dollars.[Footnote 81] However, hybrid vehicles
typically have much higher up-front costs than the nonhybrid version
of the same vehicle--about $9,000 more in the case of a 2011 Ford
Escape hybrid.[Footnote 82] As a result, USPS officials said that the
increased costs that likely would be associated with acquiring a
custom-built hybrid vehicle (compared with a comparable nonhybrid
vehicle) would, in all likelihood, far outweigh the potential fuel
cost savings given a delivery vehicle's low annual mileage.
Figure 15: One of Two Hybrid 2-Ton Delivery Vehicles in Huntington,
New York, 2010:
[Refer to PDF for image: photograph]
Source: GAO.
[End of figure]
Hydrogen Fuel Cell Vehicles:
USPS is currently piloting two hydrogen fuel cell Chevrolet Equinox
vehicles on delivery routes. Both vehicles were provided by General
Motors in 2008 with funding from DOE. As part of the pilot program,
USPS is assessing the vehicles' potential usefulness as delivery
vehicles. According to USPS, the two vehicles are meeting the demands
of USPS's daily operational drive cycle as delivery vehicles. However,
according to Vehicle Programs officials, hydrogen fuel cell technology
is in the early stages of its development and, consequently, it likely
will be a number of years before such vehicles are available in large
quantities.
[End of section]
Appendix III: Comments from the United States Postal Service:
United States Postal Service:
Dean J. Granholm:
Vice President:
Delivery And Post Office Operations:
475 L'Enfant Plaza SW:
Room 7017:
Washington, DC 20260-7017:
202-268-6500:
FAX: 202-268-3831:
[hyperlink, http://www.usps.com]
April 13, 2011:
Mr. Philip Herr:
Director, Physical Infrastructure Issues:
United States Government Accounting Office:
411 G Street, N.W.
Washington, DC 20548-0002:
Dear Mr. Herr,
We are writing to express the comments of the U.S. Postal Service
(USPS) concerning the draft report of the United States Government
Accountability Office (GAO) to the Senate Committee on Homeland
Security and Governmental Affairs and the Senate Subcommittee on
Federal Financial Management, Government Information, Federal
Services, and International Security, entitled, "Strategy Needed to
Address Aging Delivery Fleet." We request that our comments be
included as an Appendix to the Report.
We would like to commend you and your team on their professional and
thorough approach to this audit on the status of our delivery fleet.
In general, we agree with the findings of this report.
The USPS travels over 1.2 billion miles per year to provide a trusted,
affordable mail service to over 150 million addresses across our
nation. Our vehicle fleet is critical to the successful completion of
our mission. Our fleet preventive maintenance program has been
instrumental in allowing us to sustain all of the vehicles in our
delivery fleet, including the 20 year old Long Life Vehicles, in a
safe, working condition. We are now taking the next steps to gather
data on how best to improve our fleet for the future.
The USPS has a long history of being a leader in alternative fuel
vehicle use and we continue to maintain a strong alternative fuel
vehicle testing program. Not only do we maintain the largest civilian
fleet, we also have one of the largest civilian alternative fuel
fleets. We continue to explore new technologies that offer promise for
our fleet. We work with major vehicle manufacturers, industry experts,
state and Federal governmental agencies to test vehicle technology
innovations in our operations at the lowest cost possible to the
Postal Service.
Many alternatives exist for the Postal vehicle of the future; however,
ultimately operational requirements and total cost of ownership
(including investment costs, infrastructure, life cycle maintenance
and support costs) will be the drivers behind any technology selection
decision. As you correctly pointed out in your report, given our
current financial conditions, the availability of capital funds will
also be a primary factor in any investment decision.
We concur with your recommendation and we are currently in the process
of developing a strategy to address immediate and long term needs of
our light duty delivery fleet. We will complete the long term strategy
and timeline addressing the points in your recommendation by the end
of December 2011.
Thank you for your continued interest in the Postal Service.
Signed by:
Dean J. Granholm:
[End of section]
Appendix IV: GAO Contact and Staff Acknowledgments:
GAO Contact:
Phillip Herr, (202) 512-2834 or herrp@gao.gov:
Staff Acknowledgments:
In addition to the contact above, Kathleen Turner (Assistant
Director), Nicola Clifford, Bess Eisenstadt, Laura Erion, Tim Guinane,
Kenneth John, Alexander Lawrence, Joshua Ormond, Robert Owens, Matthew
Rosenberg, Kelly Rubin, Karla Springer, James Ungvarsky, Crystal
Wesco, and Alwynne Wilbur made key contributions to this report.
[End of section]
Footnotes:
[1] In addition to delivery vehicles, USPS's fleet includes other
vehicles, such as administrative vehicles used for sales, accident
investigations, and other purposes, and larger trucks used for hauling
mail.
[2] USPS also delivers to another 20 million addresses as part of its
post office box service.
[3] 39 U.S.C. §§ 101(a), 403(a).
[4] Pub. L. No. 102-486, § 303, 106 Stat. 2766 (Oct. 24, 1992).
[5] GAO, U.S. Postal Service: Strategies and Options to Facilitate
Progress toward Financial Viability, [hyperlink,
http://www.gao.gov/products/GAO-10-455] (Washington, D.C.: Apr. 12,
2010).
[6] See GAO, High Risk Series: Restructuring the U.S. Postal Service
to Achieve Sustainable Financial Viability, [hyperlink,
http://www.gao.gov/products/GAO-09-937SP] (Washington, D.C.: July 28,
2009). USPS's financial condition and outlook remained on our high-
risk list in 2011. See GAO, High Risk Series: An Update, [hyperlink,
http://www.gao.gov/products/GAO-11-278] (Washington, D.C.: Feb. 16,
2011).
[7] [hyperlink, http://www.gao.gov/products/GAO-10-455].
[8] As noted, USPS also delivers mail to another 20 million addresses
as part of its post office box service.
[9] The current collective bargaining agreement between USPS and the
National Rural Letter Carriers Association expired on November 20,
2010. At the conclusion of our review, USPS and the association were
in negotiations.
[10] According to USPS officials, while a small number of these
vehicles (minivans) are used for mail delivery, the majority are used
for administrative purposes such as sales, accident investigation, and
Office of Inspector General operations.
[11] From fiscal year 2009, when USPS implemented a route reduction
program, through fiscal year 2010, the total number of city and rural
routes decreased by 13,423.
[12] Pub. L. No. 109-58, § 701, 119 Stat. 594 (Aug. 8, 2005).
[13] Gasoline is distilled from petroleum. We used the terms
"gasoline" and "petroleum" interchangeably throughout this report.
[14] Area offices are designated as Capital Metro, Eastern, Great
Lakes, Northeast, Pacific, Southwest, and Western.
[15] Pub. L. No. 110-140, § 142, 121 Stat. 492 (Dec. 19, 2007).
[16] These data are from year-end reports for fiscal years 2006 to
2010 that include one-half ton vehicles and smaller vehicles that
comprise the vast majority of USPS's delivery fleet. Because vehicles
are categorized somewhat differently in VMAS reports than in our
custom query, the quantity of vehicles between the two data sources
cannot be compared directly.
[17] Specifically, in fiscal year 1996, EPAct 1992 required that 25
percent of all federal fleet acquisitions be for alternative fuel
vehicles. The legislation increased the percentage of alternative fuel
vehicles required for acquisitions in each subsequent year until
fiscal year 1999, when the 75 percent acquisition requirement was
reached. Pub. L. No. 102-486, § 303 (b).
[18] For example, security or safety screens were installed in the
cargo area, the driver compartment and passenger seats were removed,
and the vehicles were painted to identify them as USPS vehicles.
[19] Vehicle Programs personnel told us that they perform a lease-
versus-buy analysis for each of USPS's major vehicle acquisitions.
[20] As discussed earlier, LLVs, which make up the majority of USPS's
fleet, were acquired from 1987 through 1994, before EPAct 1992's light-
duty vehicle acquisition percentage requirements went into effect in
fiscal year 1996.
[21] These data were the most recent available, as of December 31,
2010.
[22] According to Vehicle Programs officials, redeploying vehicles
from 1,000 to 1,500 miles costs less--about $800 to $1,000 per move.
[23] The number of E85-capable vehicles discussed here (40,072) does
not agree with the number of E85-capable vehicles discussed previously
in this report (39,149) in part because the larger number includes E85-
capable vehicles used for administrative purposes. USPS applies for
E85 waivers for its entire fleet, not specifically for those vehicles
used for deliveries. Given time constraints and the small percentage
of USPS's entire E85-capable fleet that consists of administrative
vehicles (about 2 percent), we did not attempt to identify the number
of waivers received exclusively for the E85-capable delivery fleet.
According to USPS data, USPS applied for 25,424 waivers and received
21,495 for fiscal year 2010. While USPS could have appealed the 3,929
waiver requests that were not approved by DOE, it did not.
[24] In a July 2009 memorandum, USPS asked its delivery program
managers to collect information about ethanol fuel prices and driving
distances from USPS facilities, to determine where E85 was located
within 15 minutes or 5 miles of E85-capable vehicle routes, and to
find out where its price was equal to or less than that of regular
unleaded gas.
[25] According to USPS officials, the average hourly rate, with
benefits, for a city letter carrier is $41.24.
[26] According to DOE officials, DOE developed its criteria for
waivers in consultation with other federal agencies and, although USPS
participated in these consultations, USPS dissented from the final
determination.
[27] Our previous work also has identified challenges faced by
agencies in operating E85-capable vehicles on E85. For example, in
October 2008, we reported that, like USPS, other federal fleet
operators often use gasoline in unwaived vehicles because of
convenience, fuel availability, or cost considerations. See GAO,
Federal Energy Management: Agencies Are Acquiring Alternative Fuel
Vehicles but Face Challenges in Meeting Other Fleet Objectives,
[hyperlink, http://www.gao.gov/products/GAO-09-75R] (Washington, D.C.:
Oct. 22, 2008).
[28] This figure includes compressed-natural-gas-capable vehicles
that, according to Vehicle Programs officials, are currently fueled
exclusively with gasoline.
[29] Some overseas vehicle manufacturers produce right-hand-drive
vehicles, however, the cost of adapting and shipping these vehicles
here would be a major obstacle, according to Vehicle Programs
officials.
[30] USPS purchased the vehicles in 2005 for $25,026, per vehicle.
[31] The manufacturer's suggested retail price for a 2011 Ford Escape
hybrid was $30,045, compared with $21,085 for the nonhybrid Ford
Escape, as of February 15, 2011.
[32] The five options considered were: (1) continuing to maintain its
current fleet of LLVs and FFVs; (2) investing in a major acquisition
of new right-hand-drive delivery vehicles beginning in fiscal year
2008; (3) refurbishing the current fleet of LLVs and FFVs; (4)
acquiring and configuring commercially available right-hand-drive
vehicles, which were available at that time; and (5) acquiring and
configuring commercially available left-hand-drive vehicles.
[33] See GAO, Budget Issues: Agency Implementation of Capital Planning
Principles is Mixed, [hyperlink,
http://www.gao.gov/products/GAO-04-138] (Washington, D.C.: Jan. 16,
2004) and Executive Guide: Leading Practices in Capital Decision-
making, [hyperlink, http://www.gao.gov/products/GAO/AIMD-99-32]
(Washington, D.C.: December 1998).
[34] See United States Postal Service, Office of Inspector General,
Audit Report-Delivery Vehicle Replacement Strategy, DA-AR-10-005
(Washington, D.C., June 16, 2010).
[35] H.R. 4399, 111th Cong. (2009).
[36] H.R. 4711, 111th Cong. (2010).
[37] See GAO, Opportunities to Reduce Potential Duplication in
Government Programs, Save Tax Dollars, and Enhance Revenue,
[hyperlink, http://www.gao.gov/products/GAO-11-318SP] (Washington,
D.C.; Mar. 1, 2011).
[38] See GAO, Federal Energy and Fleet Management: Plug-in Vehicles
Offer Potential Benefits, but High Costs and Limited Information Could
Hinder Integration into the Federal Fleet, [hyperlink,
http://www.gao.gov/products/GAO-09-493] (Washington, D.C.; June 9,
2009).
[39] Pub. L. 110-181, § 2862 (Jan. 28, 2008).
[40] In addition, very few commercially available vehicles that the
Environmental Protection Agency has certified as low-greenhouse-gas-
emitting vehicles are large enough for potential use for USPS mail
deliveries.
[41] This estimate includes direct costs for vehicle maintenance
facility parts, direct and indirect labor costs (salaries and benefits
for mechanical technicians, clerks, supervisors, managers, and vehicle
operations and maintenance assistants), contractor parts and labor,
and fuel. The estimate does not include certain other costs, such as
those for depreciation and general agency overhead, including the cost
of operating and maintaining the agency's vehicle maintenance
facilities.
[42] See United States Postal Service, Office of the Inspector
General, Audit Report-Delivery Vehicle Replacement Strategy.
[43] Our custom query of VMAS showed a total of about $497 million in
direct maintenance costs in fiscal year 2010, significantly less than
USPS's $750 million estimate for vehicle maintenance in fiscal year
2010. Several factors account for the difference in costs between the
agency's estimate and the results of our custom query. First, VMAS
does not include supervisory and management labor costs, or the
benefits it pays to these employees. Second, while VMAS includes a
large portion of direct labor costs for technicians who service
delivery vehicles, unlike USPS's estimate, VMAS does not account for
these employees' full labor costs. Third, according to USPS data,
about 6 percent of USPS's total maintenance costs--all due to
maintenance performed by contractors--are not entered into VMAS but
are included in the agency's $750 million estimate of total
maintenance costs for fiscal year 2010. Finally, while costs related
to accidents are contained in USPS's total cost estimate, we removed
these costs from our analysis of maintenance costs. Neither the $497
million in direct maintenance costs nor the $750 million estimate for
direct and indirect maintenance costs include certain other costs,
such as those for depreciation and general agency overhead, including
the cost of operating and maintaining the agency's vehicle maintenance
facilities. Additional information on the costs contained in USPS's
estimate and our custom query of VMAS is provided in appendix I.
[44] The Office of Inspector General reported on this matter in June
2009 and recommended that USPS take action to ensure that all
contractor costs are entered into VMAS. USPS agreed to reinforce its
existing policy in a Vehicle Maintenance Bulletin. See United States
Postal Service, Office of the Inspector General, Audit Report-Vehicle
maintenance Facilities Scheduled Maintenance-National Capping Report,
DR-AR-09-007 (Washington, D.C., June 30, 2009).
[45] We analyzed USPS's database of accidents and identified that at
least 95.5 percent of the reported vehicle accidents did not involve
defective parts. While some portion of the remaining 4.5 percent of
vehicle accidents could have involved defective equipment, we could
not reliably determine whether they did because of limitations related
to information contained on the form used to populate the database.
[46] USPS established $3,500 as a one-time repair threshold for
approving expenditures for LLV maintenance. We used this threshold to
create maintenance ranges for the purposes of analyzing the VMAS data.
[47] Vehicle maintenance costs between fiscal years 2006 and 2009
reflect a similar pattern, with most delivery vehicles having less
than $3,500 in annual maintenance costs, and a small portion having
more than $7,000, including some with more than $10,500 in maintenance
costs.
[48] According to VMAS end-of-fiscal-year reports, unscheduled
maintenance accounted for the following percentages of total direct
maintenance costs: (1) 28.9 percent in fiscal year 2005, (2) 28.8
percent in fiscal year 2006, (3) 28.8 percent in fiscal year 2007, (4)
29.0 percent in fiscal year 2008, (5) 29.7 percent in fiscal year
2009, and (6) 31.3 percent in fiscal year 2010. As discussed
previously, these percentages do not include about 6 percent of USPS's
total maintenance costs attributable to maintenance performed by
contractors.
[49] According to USPS officials, vehicle maintenance facility
managers are rated on their ability to accomplish their vehicles'
scheduled maintenance inspections, whether the inspections are
conducted in house or by a contractor. To get credit for these
inspections, the vehicle maintenance facility manager must enter
information on the inspections into VMAS. Thus, according to USPS
officials, maintenance facility managers routinely enter this
information into VMAS. In contrast, some unscheduled maintenance
performed by contractors, such as when a vehicle breaks down on its
delivery route, may be arranged and paid for by the local postmaster.
If the postmaster does not send the itemized bill to the vehicle
maintenance facility to be entered into VMAS, the vehicle maintenance
facility may not learn that the repair ever took place. As a result,
USPS officials consistently told us that the 6 percent of maintenance
costs that are not captured in VMAS are due to unscheduled
maintenance. As discussed, in response to a June 2009 Office of
Inspector General recommendation that USPS take action to ensure that
all contractor costs are entered into VMAS, USPS agreed to reinforce
existing policy in a Vehicle Maintenance Bulletin.
[50] We observed two bald tires on a delivery vehicle at another post
office in Florida. The manager of the post office was unaware of the
condition of the tires, but told us that the vehicle would be taken
out of service immediately until the tires were replaced.
[51] USPS had the manufacturer add a window to the left-hand side of
the FFV to improve visibility and increase the carriers' safety when
merging from the right side of roadways.
[52] USPS's financial condition also poses a significant barrier to
funding a major refurbishment of the delivery fleet. As discussed
earlier, based on a USPS contractor's 2005 estimate of $20,000 per
vehicle, it would cost about $3.5 billion to refurbish 175,000
delivery vehicles.
[53] According to a Vehicle Programs official, this cost would cover
the vehicle, shipping, quality control oversight, technician training,
and the purchase of essential repair tools. USPS did not estimate the
costs to dispose of its existing vehicles, including environmental
costs.
[54] See GAO, U.S. Postal Service: Legislation Needed to Address Key
Challenges, [hyperlink, http://www.gao.gov/products/GAO-11-244T]
(Washington, D.C.: Dec. 2, 2010).
[55] See United States Postal Service, Fiscal Year 2011 Integrated
Financial Plan.
[56] [hyperlink, http://www.gao.gov/products/GAO-10-455].
[57] Pub. L. No. 109-435, §201(a), 120 Stat. 3198 (Dec. 20, 2006).
[58] Rate increases for market-dominant products are limited by an
annual price cap based on increases in the Consumer Price Index. These
products primarily include First-Class Mail, Standard Mail,
Periodicals (mainly magazines and local newspapers), and some types of
package services (primarily Single-Piece Parcel Post, Media Mail,
Library Mail, and Bound Printed Matter).
[59] 39 U.S.C. § 410 (a).
[60] According to a senior USPS attorney, USPS did not receive any of
these funds directly. Instead, the parties involved provided the funds
directly to the manufacturer.
[61] Congress provided agencies with an alternative mechanism for
obtaining energy-efficiency improvements in 1986 when it authorized
agencies to use energy savings performance contracts, a type of share-
in-savings contract. Through share-in-savings contracting, the agency
compensates a contractor from the financial benefits derived as a
result of its contract performance.
[62] In past work on issues related to financing federal capital
projects, we have raised concerns about the value of energy savings
performance contracts. In 2004, for example, we reported that these
contracts may be more expensive than timely, full, and up-front agency
appropriations. See GAO, Capital Financing: Partnerships and Energy
Savings Performance Contracts Raise Budgeting and Monitoring Concerns,
[hyperlink, http://www.gao.gov/products/GAO-05-55] (Washington, D.C.:
Dec. 16, 2004.) In addition, in 2005, we questioned whether savings
from 254 energy savings performance contracts at a number of agencies
actually covered costs. See GAO, Energy Savings: Performance Contracts
Offer Benefits, but Vigilance Is Needed to Protect Government
Interests, [hyperlink, http://www.gao.gov/products/GAO-05-340]
(Washington, D.C.: June 22, 2005).
[63] [hyperlink, http://www.gao.gov/products/GAO-10-455].
[64] USPS is authorized to request reimbursement for public service
costs incurred for providing effective and regular postal service in
communities where post offices may not be deemed self-sustaining. See
39 U.S.C. § 2401(b).
[65] In fiscal year 2010, USPS recognized $113 million in revenue
(including $24 million in imputed interest) from these appropriations,
which was 0.2 percent of its total revenue of $67.1 billion.
[66] As discussed, one of two recent legislative proposals would have
authorized funding ($2 billion) to replace a portion of USPS's fleet
with electric vehicles. The legislation was not enacted.
[67] [hyperlink, http://www.gao.gov/products/GAO-11-244T].
[68] The eight codes are (1) curbline delivery; (2) dismounted route,
city; (3) expedited delivery; (4) park and loop; (5) rural route; (6)
maintenance reserve; (7) collection; and (8) parcel post. Through
discussions with Vehicle Programs officials, we also learned that the
maintenance reserve code includes some vehicles that are not used for
delivery. To exclude these vehicles from our analysis, as these
officials recommended, we eliminated all vehicles with the function
code of maintenance reserve and with make-model codes that clearly
identified them as not being part of the delivery fleet (such as 7-ton
vehicles, which are large trucks that are not used for mail
deliveries).
[69] This estimate includes direct costs for vehicle maintenance
facility parts, direct and indirect labor costs (salaries and benefits
for mechanical technicians, clerks, supervisors, managers, and vehicle
operations and maintenance assistants), contractor parts and labor,
and fuel. The estimate does not include certain other costs, such as
those for depreciation and general agency overhead, including the cost
of operating and maintaining the agency's vehicle maintenance
facilities. VMAS also does not include these costs.
[70] About $300 million of the $1.05 billion costs were for fuel. This
amounts to about $1,600 in fuel costs per vehicle.
[71] Specifically, VMAS does not include any indirect labor costs
related to the salaries and benefits for clerks, supervisors,
managers, and vehicle operations, and maintenance assistants.
[72] Costs recorded in VMAS include direct costs for vehicle
maintenance facility parts and the labor costs of the technicians who
service the vehicles. These labor costs are calculated based on a
fixed hourly rate, excluding benefits, multiplied by the number of
hours charged to complete each vehicle's servicing. According to a
Vehicle Programs official, for fiscal year 2010, the fixed hourly rate
recorded in VMAS was $35 for technicians--less than the actual average
hourly labor rate of $43, including benefits, for these employees.
[73] The Office of Inspector General reported on this matter in June
2009 and recommended that USPS take action to ensure that all
contractor costs are entered into VMAS. USPS agreed to reinforce its
existing policy in a Vehicle Maintenance Bulletin. See United States
Postal Service, Office of the Inspector General, Audit Report-Vehicle
Maintenance Facilities Scheduled Maintenance-National Capping Report.
[74] We attempted but were unable to obtain interviews with
representatives from numerous organizations, including the Alliance of
Automobile Manufacturers, the Alternative Fuel Vehicle Institute, the
American Coalition for Ethanol, Calstart (a nonprofit organization
that works to develop environmentally sound transportation options),
the Electric Transportation Engineering Corporation, the National
Association of Letter Carriers, the NAFA Fleet Management Association,
the National Propane Gas Association, and the Propane Vehicle Council.
[75] Compressed natural gas tanks have a service life of 15 to 25
years and are required to be labeled with an expiration date.
[76] Ford provided gasoline-powered minivans to USPS in response to
this recall.
[77] Neighborhood electric vehicles cannot be legally operated on
highways or at speeds greater than 25 miles per hour.
[78] DOE, on behalf of USPS, began testing these vehicles in the
summer of 2010. At the conclusion of our review, testing had been
completed on two of the vehicles. USPS will pay $50,000 for each
conversion, with the remainder of the costs to be covered by the
supplier.
[79] Except for certain urban areas, such as New York City, New York,
USPS does not typically use its 2-ton trucks for mail deliveries.
[80] According to Vehicle Programs officials, one of these trucks was
subsequently returned to the manufacturer.
[81] USPS purchased these vehicles in 2005 for $25,026 per vehicle.
[82] The manufacturer's suggested retail price for a 2011 Ford Escape
hybrid was $30,045, compared with $21,215 for the nonhybrid Ford
Escape, as of February 15, 2011.
[End of section]
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